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UNIVERSITY  OF  CALIFORNIA 
AT  LOS  ANGELES 


UNIVERSITY  of  CALIFORNIA 

AT 

LOS  ANGELES 

LIBRARY 


Gold  Standard  in  International  Trade 


REPORT  ON  THE  INTRODUCTION  OF  THE 
GOLD-EXCHANGE  STANDARD 


into 


China,  the  Philippine  Islands,  Panama,  and  Other  Silver- 
Using  Countries 


and  on  the 


STABILITY  OF  EXCHANGE 


Submitted  to  the  Secretary  of  State,  October  22,  1904,  by  the 
Commission  on  International  Exchange 

HUGH  H.  HANNA 
CHARLES  A.  CONANT 
JEREMIAH  W.  JENKS 

Commissioners 


WASH INGTON 

GOVERNMENT    PRINTING    OFFICE 

1904 


13820 i 


For  re?^{!-;iv:-  Bwm  Only 


J  ^52^? 


o 


v^  CONTENTS. 


Page. 

President's  Letter  op  Transmittal 7 

Sf.crktary  Hay's  Letter  of  Submittal 9 

Report  of  the  United  States  Commission .  _ 13 

1.  The  work  in  China 14 

2.  Late  developments  in  the  reform  in  the  Philippines 21 

3.  The  monetary  reform  in  Panama 22 

4.  Stability  in  exchange 26 

Report  of  Jeremiah  W.  Jenks,  special  commissioner  selected  to  carry  on 

the  work  in  the  Far  East 30 

1 .  The  work  in  Japan 30 

2.  The  work  in  the  Philippine  Islands 32 

3.  The  work  in  China 41 

Monetary  and  bvisiness  conditions 41 

Banks  and  banking 47 

Business  in  the  interior 52 

Opinions  of  foreigners,  Chinese  officials,   and    business  men 

regarding  monetary  reform 58 

Relations  of  officials  and  business  men 68 

Dealings  with  the  Chinese  Government 70 

APPENDIXES  TO  THE   REPORT. 

Appendix  A. — China. 

I.  Memoranda  on  a  new  monetary  system  for  China 75 

Pamphlet  prepared  by  Mr.  Jenks,  outlining  the  American  suggestions, 

in  English  and  Chinese,  for  distribution  in  China 75 

1.  Note  of  Chinese  Government 75 

2.  Message  of  President  Roosevelt 79 

3.  Suggestions  of  plan  for  China _• 80 

4.  Considerations  regarding  monetary  plan 82 

(a)  Advantages  of  a  good  system 82 

(b)  Difficulties  of  a  change  in  China 84 

((')   Introduction  of  the  new  system 88 

(rf)  Need  of  expert  assistance 92 

(e)  Outline  of  proposed  system. 93 

(/)  Maintenance  of  parity  with  gold 96 

(y)  Establishment  of  a  gold  reserve 100 

( // )  Bank  notes - .  102 

(0   Work  already  done -- 103 

0)   Continuance  of  the  work 105 

5.  Effects  of  balance  of  trade  106 

3 


4  CONTENTS. 

Page. 

II.  Considerations  on  a  neto  monetary  system  for  China 113 

Pamphlet  containing  abstracts  of  arguments,  estimates  of  cost,  etc., 
prepared  by  Mr.  Jenks  in  English  and  Chinese  for  presentation  to 
the  Chinese  Government  commission,  and  distributed  in  China 113 

1.  Introduction 113 

2.  Uniformity  of  coinage 117 

3.  Methods  of  fixing  values  of  subsidiary  and  minor  coins 118 

4.  Advantages  of  a  fixed  gold  value  for  the  Chinese  currency 119 

5.  Reasons  for  adopting  a  gold  value  for  the  silver  and  copper  coins 

at  the  beginning  of  the  system 123 

6.  Methods  of  maintaining  the  silver  and  copper  coins  at  a  fixed 

value  with  gold 125 

7.  The  gold  reserve 132 

8.  Cost  of  establishing  the  new  monetary  system 142 

9.  Administrative  organization —  r. 147 

10.  Revision  of  treaties - . 151 

11.  Comparison   of  the   two  plans  of  starting  the  new  monetary 

system 153 

12.  To  begin  the  monetary  system  on  a  gold-exchange  basis  without 

a  loan  _. 156 

18.  Coinage  specifications 158 

14.  Foreign  experts  for  the  Chinese  monetary  system 160 

15.  Summary  of  points  in  connection  with  the  Chinese  monetary 

system 164 

16.  Government  procedure 169 

17.  Answers  to  objections  and  final  suggestions 172 

III.  Comments  and  suggestions  on  the  Chinese  monetary  reform 176 

1.  Memorandum  on  a  gold-standard  currency,  by   Mr.  Alfred  E. 

Hippisley 176 

2.  Chinese  memorials 190 

(o)  Memorial  to  the  Empress  Dowager  and  the  Emperor,  by 

the  Chinese  minister  to  Russia 190 

(6)  Memoi'ial  regarding  gold  reserve,  by  Board  of  Revenue 201 

(c)   Memorial  regarding  National  Bank,  by  Monetary  Commis- 
sion   202 

3.  Extract  from  Report  on  Foreign  Trade  of  China  for  the  year  1903, 

by  Mr.  J.  W.  Jamieson,  commercial  attache  to  His  Majesty's 
legation  in  Peking,  No.  3280,  Annual  Series  Diplomatic  and 
Consular  Reports 203 

IV.  Data  regarding  the  present  currency  in  China 210 

1.  Extracts  from  special  reports  of  the  imperial  maritime  customs .  210 
(a)  The  Haikwan  Banking  System  and  Local  Currency  at  the 

Treaty  Ports.  V.  Office  Series,  Customs  Papers  No.  12..  210 
{h)  Sycee:  Weights,  Value,  Touch.     V.  Office  Series,  Customs 

Papers  No.  47 227 

(c)  Scarcity  of  Copper  "  Cash  ":  Mr.  Woodruff's  remedial  sug- 

gestions.   V.  Office  Series,  Customs  Papers  No.  50 250 

(d)  China's  Defective  Currency:  Mr.  Woodruff's  remedial  sug- 

gestions (with  notes  by  Dr.  J.  Edkins)  Customs  Papers 

No.  52 354 


CONTENTS.  5 

IV.  Data  regardinrt  tlir  prefterit  currency  in  China — Contiiuiod.  Page. 

.2.  Extracts  from  special  report  of  H.  B.  Morse,  statistician  of  the 
imperial  maritime  customs,  printed  in  the  .Tonrnal  of  the  China 
Brantli  of  the  Royal  Asiatic  Society.     New  Series,  Vol.  XXIV, 

Shanghai,  1890 258 

3.  Money  System  of  Manchuria    .  _ 276 

(«)  Report  from  the  American  consul  at  Newchwang 276 

(b)  The  defeat  of  the  traveling  rouble.     Extract  from  "Man- 

chn  and  Muscovite,"  by  B.  L.  Putnam  Weale 278 

Appendix  B. — The  Philippine  Islands. 

1.  Extract  regarding  currency  from  the  Report  of  the  Secretary  of  Finance 

and  Justice.  1903 283 

2.  Extract  from  Report  of  the  Chief  of  the  Bureau  of  Insular  Affairs,  War 

Department ,  1904 294 

3.  Act  (No.  1042)  prohibiting  the  importation  into  the  Philippine  Islands 

of  certain  kinds  of  coins 307 

4.  Act  (No.  1045)  to  maintain  parity  of  Philippine  coins  by  imposing  a  tax 

upon  written  contracts  payable  in  certain  kinds  of  currencies,  a  license 

tax  for  conducting  business  in  certain  currencies,  etc 308 

5.  Order  of  Secretary  of  Finance  and  Justice  changing  rate  charged  for 

exchange 312 

Appendix  C. — Panama. 

1.  Law  proposed  in  Panama 313 

2.  First  memorandum  of  American  Commission .  _ 315 

3.  Pi-ess  reports  of  negotiations 319 

4.  Project  of  the  American  Commission 322 

5.  Agreement  between   the   Secretary  of  War    and  the    commission  of 

Panama 329 

6.  Act  of  Panama  in  pursuance  of  agreement -.-      331 

Appendix  D. — Mexico. 

1.  Mexican  monetary  problem,  Commission's  final  recommendations  and 

reports 334 

2.  Explanatory  statement  by  the  Minister  of  Finance,  and  bill  sent  to  Con- 

gress   423 

Appendix  E. — The  Straits  Settlements. 
The  Reform  of  the  Straits  Currency,  by  Dr.  E.  W.  Kemmerer,  chief  of 
division  of  the  currency  of  the  treasury,  Philippine  Islands,  from  Politi- 
cal Science  Quarterly,  December,  1904 451 

Appendix  F. — TJie  situation. 

1.  The  dislocation  of  the  exchanges.     Its  effect  on  gold  and  silver  coun- 

tries, by  Charles  A.  Conant 461 

2.  The  end  of  the  Mexican  dollar,  by  Prof.  A.  Piatt  Andrew,  Quarterly 

Journal  of  Economics,  May,  1904 470 

3.  Comments  on  the  monetary  situation 491 

(a)  Extract  from  Report  of  Bank  of  Indo-China .-      491 

(5)  Extract  from  ' "  Revue  Economique  Internationale  ". -.      493 

4.  Coinage,  currency  and  exchange,  1903,  from  Indian  Financial  State- 

ment, 1904-5 494 

5.  Stability  in  price  of  silver  on  account  of  regular  purchases  for  India 497 

6.  Pixley  and  Abell's  bullion  circular  for  1904 499 

Appendix  Q. —Statistical  data 501 


LETTER  OF  TRANSMITTAL. 


To  the  Sevafe  and  House  of  Representatives: 

I  transmit  herewith  the  final  report  of  the  Commission  on  Inter- 
national Exchange,  constituted  under  the  authority  of  the  act  of 
March  3,  1903,  in  compliance  with  the  requests  of  the  Governments  of 
China  and  Mexico. 

The  work  of  the  Commission  has  assisted  greatly  in  the  establish- 
ment of  the  new  monetary  systems  of  the  Philippine  Islands,  Mexico, 
and  the  Republic  of  Panama.  The  w'ork  done  in  China  has,  from  the 
letter  of  the  Prince  of  Ch'ing,  the  head  of  the  Executive,  been  very 
helpful  to  that  Government.  Such  improvements  in  the  monetary 
systems  of  the  silver-using  countries  l)ring  them  into  closer  connec- 
tion with  the  gold-standard  countries  and  are  of  very  great  benefit  to 
the  trade  of  the  United  States,  and  every  ett'ort  should  be  made  to 
encourage  such  reforms. 

The  attention  of  Congress  is  invited  to  the  accompanying  report  of 
the  Acting  Secretary  of  State,  whose  request  for  a  suitable  appropri- 
ation for  carr3^ing  on  this  valuable  work  in  the  manner  which  seems 
to  him  most  practicable  I  heartily  indorse  and  recommend  to  your 
favorable  consideration. 

Theodore  Roosevelt. 

The  White  House, 

Janaary  ,vC,  1905. 


LETTER  OF  SUBMITTAL. 


The  President  : 

I  have  the  honor  to  submit  herewitli  the  final  report  of  the  Commis- 
sion on  International  Exchange,  constituted  under  the  authority  of 
the  act  of  March  3,  1003,  and  continued  last  year  by  means  of  a  special 
appropriation.  The  chief  purpose  of  the  Commission  was  to  bring 
about,  as  far  as  possible,  a  fixed  relationship  between  the  moneys  of  the 
gold-standard  countries  and  the  silver-using  countries.  This  result 
could  be  accomplished  chiefly  by  the  establishment  in  the  silver-using 
countries  of  new  monetary  systems  on  the  gold  exchange  basis,  the 
new  silver  and  copper  coins  in  those  countries  being  given  a. fixed 
value  in  terms  of  gold. 

The  work  of  the  Commission,  considering  the  difficulties  of  its  task, 
has  been  on  the  whole  very  successful.  The  new  monetary  system  in 
the  Philippine  Islands,  established  under  act  of  Congress  approved 
March  2,  1903,  which  in  the  main  has  furnished  the  model  for  the 
further  w^ork  of  the  Commission,  was  in  operation,  but  serious  difficul- 
ties were  met  with  in  the  transition  from  the  old  currency  to  the  new. 
A  member  of  the  Commission  was  sent  to  study  the  situation  and 
counsel  w^ith  the  Philippine  Commission  regarding  these  conditions. 
Two  measures  Avere  passed  hj  the  Com.mission,  the  results  of  which 
were  immediately  beneficial,  so  that  within  three  months  after  they 
went  into  full  effect  the  new  coins  were  in  great  demand  and  the  new 
currency  system  of  the  islands  was  firmly  established  upon  the  new 
basis. 

Since  the  report  of  the  Commission  on  International  Exchange 
was  presented  to  this  Department  the  Republic  of  Mexico  has  passed 
a  law  carrying  out  the  purpose  announced  by  her  Government  in 
seeking  the  cooperation  of  the  United  States  to  establish  a  stable  cur- 
rency system  for  that  Republic.  This  action  was  a  natural  sequence 
of  the  measures  taken  by  the  Commission  on  International  Exchange 
while  in  Europe  and  by  Mexico  at  home  to  facilitate  the  transition 
from  the  previous  system  of  fluctuating  exchange  to  one  which  would 
promote  her  trade  with  the  United  States  and  other  gold-using 
countries.  The  beneficial  effect  of  this  law  has  already  been  felt  in 
the  exchanges  between  Mexico  and  New  York.     The  giving  to  its 

9 


10  LETTER   OF   SUBMITTAL. 

silver  coins  a  fixed  value  in  terms  of  gold  has  been  rendered  much 
easier  by  the  relative  stability  during  the  last  year  of  the  price  of 
silver  bullion.  This  relative  steadiness  has  been  brought  about 
largely  by  the  regularity  of  the  purchases  of  the  silver  needed  by  the 
Government  of  British  India,  which  method  of  purchase  was  sug- 
gested by  the  Commission  on  International  Exchange. 

The  Republic  of  Panama  had  a  silver  currenc}'^  of  which  the  value, 
measured  in  gold,  constantly  fluctuated.  Inasmuch  as  great  expendi- 
tures would  need  to  be  undertaken  in  connection  with  the  building  of 
the  canal,  and  as  losses  and  confusion  in  making  contracts  would 
inevitably  be  incurred  by  the  Government  under  such  a  system,  it 
seemed  extremely  desirable,  if  not  essential,  that  that  country  be 
placed  upon  the  gold  basis.  On  the  suggestion  of  the  Commission  on 
International  Exchange,  the  matter  was  taken  up  by  oiir  Government 
with  the  Government  of  the  Republic.  The  result  was  the  establish- 
ment of  a  new  monetary  system  for  the  Republic  of  Panama  in 
accordance  with  the  terms  of  an  agreement  with  the  United  States 
along  the  lines  recommended  by  the  Commission.  It  will  now  be 
feasible  for  the  United  States  Government,  in  its  financial  operations 
in  connection  with  the  building  of  the  canal,  to  employ  this  new  cur- 
rency, thereb3^  avoiding  the  risks  which  would  come  from  fluctua- 
tions in  the  price  of  silver,  while  meeting  local  conditions  by  a 
'currency  similar  to  that  which  the  people  have  for  many  years  been 
accustomed. 

In  conjunction  with  the  Republic  of  Mexico  the  Government  of 
China  at  the  beginning  of  1903  also  requested  the  assistance  of  the 
United  States  in  the  same  direction.  In  consequence,  after  the 
commission  had  consulted  the  European  governments,  one  of  its 
members,  Mr.  Jenks,  was  sent  to  China  to  report  the  residts  and  to 
give  to  the  Chinese  Government  any  further  assistance  which  it  might 
desire.  The  connnissioner  was  received  with  cordiality.  Every  facil- 
ity for  investigation  of  the  local  conditions  in  China  was  given  him, 
and  the  Chinese  Government  appointed  a  commission  to  study  the 
question.  Tlu^  difficulties  l)efore  the  Chinese  Government  in  the  estab- 
lishment of  its  new  monetary  system  are  of  course  enormous.  Time 
will  be  needed  to  enable  it  to  accumulate  a  sufficient  gold  reserve;  to 
persuade  provincial  authorities  to  give  up  their  present  custom  of 
independent  coinage;  to  change  the  habits  of  the  people  regarding 
the  use  of  bullion;  to  provide  for  proper  expert  assistance,  and  to 
overcome  other  difficulties.  Yet  before  the  commissioner  was  com- 
pelled to  leave  China,  under  the  limitations  of  the  act  of  Congress 
of  last  year,  the  opinion  was  freely  expressed  that  very  much  had 
been  done  toward  hastening  the  complete  accomplishment  of  the 
desired  reform.  Prominent  officials  connected  with  the  monetary 
system  expressed  favorable  opinions,  and  the  Prince  of  Ch'ing,  the 


LETTER    OF    SUBMITTAL.  11 

head  of  the  Executive  Government,  stated  in  a  letter  to  the  com- 
missioner, transmitted  with  this  report,  that  their  monetary  reform, 
they  were  convinced,  must  in  the  main  follow  the  lines  suggested  by 
the  American  Coimnission. 

The -movement  toward  the  fixing  of  the  rates  of  exchange  between 
the  gold  and  silver  countries  is  one  of  great  importance  to  the  devel- 
opment of  our  international  trade.  The  great  difficulties  in  the  estab- 
lishment of  such  a  system  as  the  one  proposed  are  by  no  means  under- 
estimated, but  they  have  been  overcome  in  different  countries  and  can 
be  overcome  in  China.  Certainly  nothing  else  so  feasible  as  the 
American  plan  has  been  anywhere  proposed.  In  spite  of  difficulties 
which  may  attend  any  such  plan,  it  tends  to  remove  obstacles  to  our 
export  trade  directly  and  to  a  still  greater  extent  to  stimulate  it  indi- 
rectly by  promoting  the  building  of  railways  and  the  extension  of 
internal  commerce  in  the  countries  adopting  a  stable  system.  This 
effect  is  already  being  felt  upon  the  introduction  of  American  capital 
into  Mexico ;  and  similar  effects,  it  is  probable,  would  be  felt  in  China 
with  the  adoption  of  similar  measures.  The  work  in  China  should 
therefore  be  persistently  carried  on  until  the  new  system  is  firmly 
established.  As  opportunity  offers  the  matter  should  be  In-ought  to 
the  attention  of  the  South  American  States  and  to  other  countries 
whose  monetary  systems  are  not  established  on  a  sound  basis. 

It  is  recommended  that  an  adequate  appropriation  be  put  by  Con- 
gress at  the  disposition  of  this  Department,  for  the  continuation  of 
this  work  in  such  manner  as  it  may  think  proper. 

Respectfully  submitted. 

Francis  B.  .  Loomis, 

Acting  Secretary  of  State. 
Department  of  State, 

Washington^  January  20, 1905. 


GOLD  STANDARD  IN  CHINA  AND  PANAMA. 


REPORT  OF  THE  COMMISSION. 

Washington,  D.  C,  Octoher  '2:2, 1904. 

Sir  :  The  Coininissioii  on  International  Exchange  begs  leave  to  sub- 
mit herewith  its  report  on  the  work  clone  and  the  results  accomplished 
since  its  previous  report  of  October  1,  1903,  together  with  supple- 
mentary material  explanatoiT  of  its  work  and  of  the  general  subjects 
which,  under  your  instructions,  it  has  had  under  consideration. 

The  work  done  during  the  last  year  covers  especially  certain  inves- 
tigations and  suggestions  in  connection  with  the  reform  of  the  mone- 
tary system  of  China,  the  currency  of  the  Philippine  Islands,  and 
the  establishment  of  a  new  monetary  system  in  the  Republic  of 
Panama. 

There  are  submitted  herewith  also  some  data  shoAving  a  tendency 
toAvard  greater  stability  in  the  price  of  silver  bullion,  apparently  as  a 
result  of  the  direct  action  of  governments  with  whom  this  Commis- 
sion conferred  last  year,  especially  of  the  British  Government  in 
connection  with  the  currency  of  India.  This  has  in  itself  tended  to 
produce  greater  stability  of  exchange,  and  thus  to  diminish  one  of 
the  obstacles  to  trade  between  the  gold  countries  and  the  silver- 
using  countries  which  was  the  occasion  of  the  appointment  of  the 
Commission. 

After  its  return  from  Europe  in  September,  1903,  as  explained  in 
its  previous  report,  the  Commission  designated  Mr.  Jenks  as  its  rep- 
resentative to  go  to  China  to  present  to  the  Imperial  Government  a 
report  on  its  work  in  Europe,  and,  in  accordance  with  the  request  of 
that  Government,  to  render  it  any  further  assistance  that  it  might 
desire.  The  President  approved  the  suggestion,  and  Mr.  Jenks  re- 
ceived special  instructions  for  his  work  in  the  Orient.  Inasmuch, 
however,  as  the  new  Philippines  currency  was  not  yet  fully  in  opera- 
tion, and  certain  questions  regarding  the  currency  law  were  under 
consideration  by  the  Philippine  Commission,  it  was  thought  best 
that,  before  taking  up  his  work  in  China  he  should  visit  the  Philip- 
pines, in  order  to  lay  before  the  government  there  suggestions  regard- 
ing their  money  system  which  had  grown  out  of  the  discussions  in 
Europe  as  well  as  to  gather  the  results  of  experience  in  the  Philip- 
pines which  were  likely  to  prove  of  service  to  the  Cliinese  Govern- 
ment in  the  establishment  of  its  system. 

13 


14  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 


THE    WORK    IN    CHINA. 

The  best  assistance  which  could  be  rendered  to  China  in  response 
to  her  request,  it  was  thought,  was  to  cooperate  with  her  in  every 
way  possible  to  adopt  the  wisest  plans  for  the  establishment  of  a  new 
monetary  system  of  her  own,  based  upon  a  fixed  gold  value. 

In  order  to  present  the  general  ideas  of  the  Commission  on  Inter- 
national Exchange  on  this  subject  to  the  Chinese  Government  and 
people  as  a  basis  for  discussion,  a  pamphlet  was  prepared  setting 
forth  the  main  points  of  its  plan  as  worked  out  in  discussions  with 
the  European  government  experts,  with  the  reasons  for  making  the 
suggestions.  This  pamphlet,  printed  in  both  English  and  Chinese, 
with  the  approval  of  the  Imperial  Government  of  China,  and  in  part 
by  its  aid,  was  widelj^  distributed  among  the  officials  and  most  impor- 
tant business  men  of  China.  Some  of  the  Chinese  papers  reprinted 
the  pamphlet  in  full,  while  other  papers  there,  both  native  and  for- 
eign, reprinted  extracts  from  it  as  well  as  brief  articles  covering 
special  points  which  were  especially  prepared  for  this  purpose  by  the 
commissioner. 

As  soon  as  his  credentials  were  presented  to  the  Government  at 
Peking,  Mr.  Jenks  asked  permission  before  taking  up  the  detailed 
consideration  of  the  subject  with  the  Imperial  Government,  to  spend 
some  time  in  visiting  the  more  important  treaty  ports  as  well  as 
some  of  the  interior  provinces,  in  order  to  study  business  conditions. 
The  Imperial  Government  not  merely  gave  its  consent,  but  notified 
officials  along  the  route  chosen  regarding  the  intended  visit  and 
aided  the  commissioner  in  every  way  possible  in  making  his  observa- 
tions.    The  special  purposes  in  mind  in  this  study  were : 

First.  To  secure  a  general  view  of  monetary  conditions  in  China 
and  of  the  methods  of  doing  business  under  the  various  conditions 
found  in  diiferent  provinces.  In  the  interior  many  days  were  passed 
in  localities  where  no  money  is  employed  excepting  copper  cash  and 
chunks  of  silver  (sycee)  which  have  to  be  weighed  out  by  scales 
which  each  dealer  or  traveler  keeps  for  the  purpose.  As  opportunity 
offered,  conversations  were  held  not  merely  with  officials  of  all  ranks, 
but  also  with  bankers,  merchants,  and  even  with  day  laborers,  local 
traveling  peddlers,  roadside  workmen,  etc.  In  this  way  a  reasonably 
accurate  idea  was  secured  of  the  methods  of  conducting  business 
without  any  generally  recognized  currency  and  of  the  probable 
ability  of  the  people  of  all  classes  to  deal  with  a  new  and  uniform 
money. 

Second.  Conference  with  the  officials  from  day  to  day,  both  those 
of  high  rank,  such  as  viceroys  and  governors,  and  those  of  lesser  rank, 
such  as  local  district  magistrates,  gave  an  opportunity  to  estimate  the 


GOLD  STANDARD  IN  INTERNATIONAL  TRADK,         15 

qualifications  of  those  in  whoso  hands  would  need  to  be  placed  to  a 
greater  or  less  extent  the  administration  of  the  new  system  when  it 
should  be  adopted. 

Third.  The  attitude  of  the  people  of  various  classes,  officials,  busi- 
ness men,  and  common  people,  toward  a  change  in  the  system  and 
toward  the  new  monetary  system  suggested,  was  ascertained. 

Fourth.  Opportunity  was  offered  to  explain  in  \y,\rt  the  main  points 
of  the  sj^stem  proposed  to  the  viceroys  and  other  leading  men,  officials, 
bankers,  merchants,  etc.,  so  that  thus  valuable  criticism  of  the  plans 
from  the  point  of  view  of  those  familiar  with  local  conditions  was 
secured,  and  in  many  cases  opportunity  was  offered  to  remove  from 
the  minds  of  those  who  did  not  understand  the  purpose  of  the  invita- 
tion of  the  Chinese  (lovernment  or  its  attitude  toward  the  United 
States  in  this  matter  the  natural  susjiicion  I'egarding  the  motive  of  the 
United  States  in  undertaking  this  work;  and,  furthermore,  objections 
which  Avould  naturally  occur  to  those  not  familiar  with  the  admin- 
istration of  currency  S3^stems,  were  overcome. 

These  iiKpiiries  covered  the  inland  territory  between  Peking  and 
Hankow  on  the  Yangtse  River,  a  typical  part  of  the  interior  of  China, 
which  is  removed  from  direct  foreign  trade;  the  Yangtse  Elver  from 
Hankow  to  Shanghai,  with  visits  to  the  two  most  important  trading 
posts  on  the  river;  a  visit  to  Shanghai,  Canton,  and  Tientsin,  the 
three  most  important  treaty  ports  on  the  coast;  as  well  as  discussions 
Avith  the  governors  at  Soochow  and  Hangchow,  the  capitals  of  two 
very  important  provinces,  and  interviews  w^ith  the  customs  taotais  at 
Amoy  and  Chefoo,  important  ports  in  two  other  provinces.  The  sub- 
ject was  thus  discussed  with  the  governors  or  vicero3^s  of  ten,  and  with 
high  officials  of  twelve  out  of  the  eighteen  provinces  of  China.  At 
Shanghai,  too,  the  subject  was  discussed  in  detail  in  several  meetings 
with  the  treaty  commissioners  who  have  represented  China  in  framing 
the  important  commercial  treaties  recently  negotiated  with  Great 
Britain,  the  United  States,  and  Japan. 

The  results  of  these  investigations  and  discussions  were  that  many 
new  ideas  regarding  conditions  in  China  and  what  w'as  practicable 
for  China  were  secured ;  that  in  many  cases  misconceptions  regarding 
the  nature  of  the  reform  and  of  the  plans  under  discussion  were 
removed,  and  that  the  experience  secured  and  the  knowledge  gained 
enabled  the  commissioner  to  understand  much  more  readily  the  atti- 
tude of  the  higher  Chinese  oflicials  tow^ard  their  old  system  and  the 
proposed  new  system. 

On  his  return  to  Peking  the  subject  was  taken  up  for  detailed  dis- 
cussion with  the  Imperial  Government.  As  a  result  of  the  treaties 
with  Great  Britain,  the  United  States,  and  Japan,  it  has  been  the 
intention  of  the  Chinese  Government  to  establish  a  uniform  monetary 
system,  and  for  the  purpose  of  working  out  jjlans  for  that  system,  as 


16  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

well  as  for  meeting  the  United  States  commissioner,  a  commission  had 
been  appointed  consisting  of  the  members  of  the  board  of  revenue  and 
several  other  officials,  some  of  high  and  some  of  lesser  rank.  Some 
of  these  had  been  especially  designated  to  have  charge  of  the  new 
mint  and  to  devote  their  time  to  the  consideration  of  monetary  affairs. 

It  was  found  that  as  a  result  of  discussions  in  connection  with  the 
treaty  with  Great  Britain,  of  various  resolutions  passed  during  the 
two  or  three  preceding  years  by  foreign  chambers  of  commerce  in 
China,  of  arguments  presented  in  the  newspapers,  and  of  their  own 
study  of  the  question,  the  Chinese  Government  officials  had  appar- 
ently informally,  although  not  at  all  officially,  reached  the  conclusion 
that  they  wished  ultimately  to  place  their  system  of  currency  on  the 
gold  basis,  but  that  at  present  they  would  establish  a  uniform  silver 
and  copper  currency  without  definite  plans  for  reaching  the  gold 
basis.  Although  the  commissioner  was  treated  throughout  with  the 
greatest  courtesy  and  consideration,  it  seemed  at  first  as  if  the  officials 
with  whom  he  had  to  deal  at  Peking,  though  interested  in  the  general 
subject  had,  relatively  speaking,  slight  interest  in  the  specific  plans 
proposed  by  the  Commission  on  International  Exchange.  As  the  dis- 
cussions went  on,  however,  and  as  from  the  work  of  both  the  Chinese 
and  American  commissions  the  disadvantages  and  difficulties  became 
more  apparent  of  starting  on  a  silver  basis  without  clean-cut,  definite 
plans  for  the  change  to  the  gold  basis,  and  on  the  other  hand,  the 
advantages  of  having  the  new  coins  placed  on  the  gold  basis  from  the 
l)eginning,  both  from  the  point  of  view  of  financial  gain  to  the  treas- 
ury and  benefit  to  the  business  interests  of  the  country,  keen  interest 
on  the  part  of  the  Chinese  commissioners  was  clearly  awakened.  In 
fact,  before  the  close  of  the  discussions  the  Chinese  commissioners 
themselves  said  that  from  this  work  not  merely  had  their  views  to  a 
considerable  extent  changed,  but  that  their  whole  interest  in  the  plans 
of  the  American  Commission  had  greatly  increased. 

The  decision  of  any  question  of  this  im]:)ortance  in  China  is  finally 
made  by  the  Emperor  on  the  advice  of  the  grand  council.  The 
opinion  of  the  grand  council,  however,  is  determined  to  a  great  extent, 
of  course,  by  the  high  officials  in  the  Government  who  have  especially 
to  do  with  the  subject  under  discussion;  and  in  this  instance  the 
responsibility  for  the  recommendations  which  would  doubtless  prove 
conclusive,  rested  chiefly  upon  the  Chinese  president  of  the  board  of 
revenue.  His  Excellency  Lu  Chu'an  Lin,  together  with  their  Excel- 
lencies the  Manchu  president,  Yung  Ching,  and  Na  Tung,  the  dis- 
tinguished official  who  had  been  designated  the  year  before  to  report 
on  the  monetary  system  of  Japan.  Naturally  the  opinion  of  the 
senior  president  of  the  board  of  revenue  would  be  of  the  greatest 
influence.  His  excellency,  an  official  of  ripe  years  and  of  extended 
experience  in  various  high  official  positions,  a  man  of  upright  and 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  17 

most  positive  character,  had  apparently  reached  the  conchisioii  that 
the  wisest  plan  for  the  Empire  was  to  begin  on  a  silver  basis  in  the 
lioi)e  of  nltimately  reachin<2:  the  gold  standard;  but  the  plan  for  the 
change  to  the  gold  standard  had  not  been  fully  worked  out  by  him 
or  by  others  in  the  commission.  As  there  was  relatively  little  oppor- 
tunity for  direct  discussion  with  the  president  of  the  board  of  revenue 
on  account  of  his  absence  at  the  summer  palace  in  attendance  on  the 
court,  as  well  as  from  the  pressure  of  his  other  duties  (since,  in  his 
judgment,  the  matter  was  already  settled),  it  seemed,  until  shortly 
before  the  American  commissioner  was  compelled  to  leave  China  on 
account  of  the  limitation  of  the  life  of  the  commission  imposed  by 
Congress,  that  the  plans  of  the  commission  would  probably  not  be 
adopted  or  even  thoroughly  considered  hy  the  Imperial  Government 
in  the  most  important  matter  of  all — the  prompt  establishment  of  the 
gold  basis — although  in  numerous  minor  particulars,  even  some  of 
considerable  importance,  the  opinion  was  freely  exj^ressed  by  the 
officials  that  they  would  accept  the  American  suggestions. 

At  length,  hoAvever,  his  excellenc}^  the  president  of  the  board  of 
revenue,  was  transferred  to  the  presidency  of  the  board  of  works  and 
a  new  president  of  the  board  of  revenue  was  appointed.  His  Excel- 
lency Chao  Erh  Hsiin,  the  new  president  of  the  board  of  revenue, 
manifested  immediately  a  great  interest  in  the  plans  under  discussion 
and  himself  personally  honored  the  American  commissioner  by  meet- 
ing him  repeatedly  day  after  day  for  the  discussion  of  the  subject. 
Before  Mr.  Jenks  was  compelled  to  leave  Peking  for  America,  the 
opinion  was  expressed  by  several  of  the  high  Chinese  officials  whose 
positions  would  place  heavy  responsibility  upon  them  in  connection 
with  the  money  system,  that  the  American  plans  were  practical  if  the 
cooperation  of  the  viceroys  of  the  more  important  provinces  could 
be  secured ;  that  the  Chinese  Government  could,  if  it  seemed  advis- 
able, secure  the  financial  means  necessary  for  the  carrying  out  of  the 
reform;  and  that  there  would  be  no  infringement  of  the  sovereignty 
of  the  Empire  or  danger  to  its  integrity  or  usefulness  in  the  employ- 
ment of  such  foreign  expert  aid  as  might  be  required  for  the  estab- 
lishment of  a  system  in  accordance  with  the  American  plan. 

The  commissioner  was  assured  also  by  different  governors,  vice- 
roys, and  conunissions,  that  the  American  plans  would  have  their 
support,  and  some  of  the  highest  officials  in  Peking  are  of  the  opinion 
that  in  a  number  of  instances,  at  any  rate,  the  support  of  the  local 
authorities  will  be  heartily  given  to  the  central  Government  if  it 
undertakes  these  plans.  A  favorable  judgment  regarding  the  atti- 
tude of  the  Chinese  Government  seems  to  be  quite  general  also  among 
those  foreigu  residents  most  experienced  in  Chinese  affairs.  The 
general  opinion  seems  to  be  well  represented  by  Mr.  Conger,  the  min- 
S.  Doc.  128,  58-3 2 


18        GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

ister  of  the  United  States,  in  his  letter  to  the  Department  of  State,  as 
follows : 

I  have  the  honor  to  report  that  Professor  Jenks  left  Peking  for  home  on  the 
27th  instant. 

His  task  was  a  very  difficult  one,  and  at  first  the  prospects  were  rather  dis- 
couraging, but  by  patience,  persistence,  and  clever  pi'esentation  of  his  unsurpassed 
knowledge  of  the  subject,  he  has  made  great  progress.  He  has  practically 
brought  the  Chinese  Government  to  believe  that  his  plan  is  the  correct  one,  and 
ought,  if  possible,  to  be  adopted ;  yet  they  greatly  fear  that  so  radical  a  change 
in  their  financial  system  can  not  at  present  be  carried  out  by  a  government 
which  has  so  little  real  power  over  its  separate  provinces.  However,  they  have 
promised  to  at  once  consult  the  leading  viceroys  and  governors  and  see  what 
can  be  done ;  but  whether  or  not  Professor  Jenks's  plan  is  adopted,  his  instruc- 
tion and  advice  will  aid  the  Chinese  Government  greatly  in  its  efforts  to 
adopt  a  uniform  currency  as  required  by  the  recent  treaties,  and  his  further 
assistance  is  most  likely  to  be  solicited  by  them. 

Professor  Jenks  has  been  treated  with  the  greatest  respect  and  consideration 
by  the  Chinese  officials.  They  feel  that  he  has  been  of  great  service  to  them, 
and  it  is  certain  that  nuich  good  will  result  from  his  mission,  for  all  of  which 
he  deserves  gre.it  credit. 

Doctor  Morrison,  the  experienced,  impartial  correspondent  in 
Peking  for  many  years  of  the  London  Times,  on  the  departure  of 
Mr.  Jenks  from  Peking,  cabled  to  his  paper  as  follows : 

PROFESSOR  JENKfi'S    MISSION    ENDS CHINESE   GOVERNMENT   IMPRESSED   BY    HIS   GOLD- 
STANDARD    ARGUMENTS. 

Peking,  August  29. 

Professor  Jenks.  of  Cornell  University,  the  commissioner  delegated  by  the 
United  States  to  confer  with  the  Chinese  authorities  regarding  the  suggested 
introduction  of  the  gold  standard  in  China,  left  Peking  yesterday  on  his  return 
to  America. 

He  has  been  in  China  since  January,  and  lias  ))een  treated  with  exceptional 
honor.  His  mission  was  purely  educational  and  not  political.  With  untiring 
patience  Professor  Jenks  has  been  demonstrating  to  the  Chinese  the  necessity 
reforming  their  currency  and  the  immense  gain  that  would  follow  the  estab- 
lishment of  the  gold  standard. 

Undoubtedly  his  mission  left  its  mark.  The  Chinese  Government  is  begin- 
ning to  realize  the  vital  importance  of  the  question,  and  it  is  regrettable  that 
Professor  Jenks  should  be  compelled  to  return  to  America  when  his  work  is 
only  beginning,  for  experience  teaches  that  between  Chinese  expression  of 
approval  of  a  reform  and  its  actual  introduction  the  distance  often  is  con- 
siderable. 

Mr.  Kobert  Little,  the  veteran  editor  of  the  North  China  Daily 
News  and  the  North  China  Herald,  for  many  years  the  most  impor- 
tant foreign  publication  in  China,  writes  in  the  North  China  Daily 
News,  September  8,  1904,  as  follows : 

CURRENCY    REFORM    IN    CHINA. 

Prof.  J.  \\.  Jenks  left  Shanghai  yesterdjiy  for  the  United  States  in  the  Mon- 
f/olia.  .ind  we  are  glad  to  know  that  he  leaves  these  shores  with  the  satisfac- 
tory  conviction    that   his   mission   has   not   been   altogether   in   vain.     He   has 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.        19 

plauted — it  is  for  others  to  water,  and  tlie  increase  will  come.  Thoroughly 
conversant  as  he  is  with  his  subject  on  every  side,  a  clear  and  cogent  writer, 
a  very  able  speaker,  and  a  man  of  winning  personality,  he  was  the  best 
choice  that  the  United  States  Government  could  possibly  have  made  when  the 
Chinese  asked  for  a  connnissioner  to  advise  them  how  they  might  best  obviate 
the  loss  which  the  continuing  doi)reciation  of  silver  was  causing.  His  plan,  as 
is  generally  known,  is  the  ad()i)tion  of  the  gold  standard  without  a  gold  cur- 
rency, to  put  it  as  concisely  as  i»ossiblo,  and  he  has  found  the  statesmen  of 
IVking,  as  well  as  the  high  provincial  oHicials,  with  whom  he  has  discussed  the 
quc^stion  in  all  its  bearings,  eager  to  listen  to  him,  to  understand,  and  to  adopt 
in  due  time  his  suggestions.  Many  foreigners,  too,  who  were  first  indisposed  to 
believe  that  the  adoption  of  the  gold  standai'd  by  China  was  anything  but  an 
imiK)ssible  dream,  have  been  convinced  by  his  arguments ;  and  there  is  good 
reason  if  nothing  untoward  hapi)ens,  to  believe  that  something  like  the  reform 
which  has  been  so  unexpectedly  and  promptly  successful  in  the  Philippines, 
will  be  adopted  by  China  before  long.  Thus  China  will  come  into  line  with 
India,  the  Straits,  the  Philippines,  and  Japan,  to  the  permanent  advantage  of 
all  who  do  business  with  gold-standard  countries.  And  mainly  to  the  suave, 
unassuming,  but  thoroughly  earnest  professor  of  Cornell  University,  with  his 
unexcelled  mastery  of  facts  and  figures,  this  great  and  beneficial  reform  will 
be  due.  And  there  will  be  a  general  hope  that  circumstances  will  enable  him 
to  return  to  China  and  give  his  advice  and  assistance  to  those  who  will  be 
charged  with  putting  his  recommendations  in  action. 

Of  still  greater  import  is  documentary  testimony  from  Chinese 
sources,  besides  the  faA'orable  opinions  referred  to  above  which  have 
been  expressed  informally  by  business  men  and  officials.  The  Chi- 
nese commercial  union  of  Hongkong  took  formal  action.  The 
president  of  this  association  (an  active  member  of  the  Chinese  cham- 
ber of  commerce),  Mr.  Feng  Wa  Chun,  Avrote  to  the  American  com- 
missioner on  the  13th  of  August,  1904,  stating  that — 

A  meeting  of  a  committee  of  that  institution  was  *  *  *  held  on  the  Tth 
instant,  when  it  was  unanimously  agreed  that  it  would  be  to  the  interest  of 
China  to  adopt  a  gold  standard,  and  that  the  Chinese  residents  of  this  colony 
would  hail  such  a  step  with  gratification,  inasmuch  as  it  has  been  held  that 
Hongkong  can  not  go  "  gold  "  so  long  as  China's  currency  reuiains  unchanged. 

The  letter  concludes  with  the  hope  that  the  American  commis- 
sioner's mission  will  meet  with  the  success  it  deserves. 

More  important  still,  of  course,  is  the  official  statement  from  the 
Chinese  Government  itself.  The  Prince  of  Ch'ing,  the  president  of 
the  grand  council,  who  represents  officially  the  Chinese  Government, 
in  response  to  a  request  for  a  definite  statement  of  his  opinion  to  be 
presented  to  the  President  of  the  United  States,  wrote  to  Mr.  Jeiiks, 
on  the  eve  of  his  leaving  Peking,  as  follows : 

I  have  the  honor  to  state  that  your  excellency  having  been  connnissioned  by 
your  government  at  this  time  to  come  to  China,  I  found  myself  after  conversa- 
tion with  you  in  heai'ty  accord  with  your  ideas,  and  having  read  the  Aarious 
papers  and  memoranda  which  you  have  prepared.  I  note  that  they  are  all  exhaust- 
ive in  their  discussions,  and  set  forth  plans  covering  all  details,  for  all  of  which 
how  can  I  sufficiently  express  my  gratitude.     As  to  your  suggestions  regarding 


20        GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

the  adoption  of  u  uniform  monetary  system,  all  are  of  j^reat  importance.  China 
is  just  now  considering  the  matter  of  deciding  upon  a  new  coinage  system  and 
is  deliberating  as  to  the  establishment  of  a  national  bank,  and  it  is  most  neces- 
sary that  she  should  follow  your  plans  and  that  all  those  measures  which  need 
most  urgently  to  be  taken  up  just  now  in  accordance  with  those  plans  should  at 
once  be  put  into  execution  with  earnestness  and  prompitude.  As  to  the  rest,  it 
will  be  necessary  to  inA^estigate  and  consider  the  feelings  of  the  people,  and,  as 
occasion  may  offer,  take  these  matters  under  advisement  with  the  expectation 
that  the  suggested  measures  will  be  developed  one  after  the  other  in  such  a  way 
as,  I  trust,  will  fulfill  your  generous  wishes  for  us  and  secure  a  good  degree 
of  success. 

Your  excellency  is  well  known  in  China  and  abroad  as  a  financial  expert,  and 
your  efforts  to  formulate  ijlans  in  our  behalf,  so  sincere  and  friendly,  demand 
from  me  profound  and  grateful  thanks. 

I  hear  that  your  excellency  has  made  ])reparations  for  your  return  home  and 
that  the  date  of  your  departure  is  at  hand.  Should  there  be  occasion  in  the 
future  to  ask  the  further  benefit  of  your  instruction,  I  shall  then  write  a  special 
note  to  inform  you. 

I  avail  myself  of  the  opportunity  to  wish  you  the  compliments  of  the  day. 

The  Commission  feels,  therefore,  that  there  is  every  reason  to  believe 
that  the  mission  for  which  it  was  established,  to  cooperate  with  the 
Chinese  and  Mexican  Governments  in  establishing  sound  monetary 
systems  which  Avoiild  fix  the  rate  of  exchang-e  between  the  greatest  of 
the  silver-using  countries  and  the  gold-standard  countries,  has  been 
in  great  part  satisfactorily  performed.  It  remains  to  be  seen,  of 
course,  how  promptly  and  by  Avhat  methods  the  Chinese  Government 
will  carr}^  out  its  intentions  as  indicated  in  the  letter  of  the  Prince  of 
Ch'ing,  of  adopting  in  the  main  the  plans  of  the  Commission.  This 
much,  at  least,  is  clear — that  the  Goverment  officials  who  are  in  the 
positions  of  chief  responsibility  have  shown  the  greatest  courtesy 
and  consideration  toward  the  United  States  Commission;  that  they 
have  shown  themselves  open  to  the  fair  consideration  of  sound  argu- 
ments on  this  most  important  and  difficult  question,  and  have  mani- 
fested the  open-mindedness  and  frankness  in  announcing  a  willing- 
ness to  change  their  opinions  which  is  characteristic  of  the  greatest 
statesmen;  that  the  Chinese  Government  has  the  ability,  financial 
and  otherwise,  if,  on  further  consideration,  it  continues  to  have  the 
Avill,  to  carry  out  with  proper  expert  advice  a  good  system,  and  that 
in  the  opinion  of  the  best  informed  persons  in  China  this  intention 
and  purpose  will  continue  unless  some  hostile  influence  intervenes. 

It  is  the  opinion,  also,  of  many  of  the  best  informed  foreign  resi- 
dents in  China,  as  well  as  of  some  of  the  higher  of  the  Chinese  officials, 
that  if,  under  the  limitations  of  the  act  of  Congress,  the  connnissioner 
could  have  remained  a  iew  months  longer  in  China  he  would  have 
had  the  opportunity  of  seeing  the  new  system  organized  and  of 
cooperating  with  the  Chinese  Government  in  whatever  way  might 
have  seemed  to  it  wise  in  the  organization  of  the  sj^stem.  The  Com- 
mission, however,  has  from  the  beginning  taken  the  position  that 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  21 

it  was  doing  simply  \\  hat  it  could  to  comply  with  China's  request 
for  assistance  without  in  any  way  bringing  any  pressure  to  bear  upon 
that  Government  in  carrying  out  its  plans;  and  it  is  convinced  that, 
difficult  as  the  task  before  China  is  (and  no  other  country  in  modern 
times  in  its  monetary  reform  has  had  a  task  so  difficult),  the  good 
sense  and  wisdom  of  the  Chinese  officials,  upon  whom  rests  the  respon- 
sibility of  the  introduction  of  the  new  system,  may  be  trusted  to 
secure  the  best  expert  advice  and  to  take  the  wisest  means  of  estab- 
lishing the  new  monetary  system  on  a  sound  gold  basis. 

THE    CURRENCY    OF    THE    PHILIPPINE    ISLANDS. 

From  December  23,  1903,  to  January  16,  1904,  was  spent  by  Mr. 
Jenks  in  the  Philippine  Islands  and  in  conference  with  the  Philippine 
Commission  OA'er  proper  measures  for  transition  from  the  old  cur- 
rency system  to  the  new  one  provided  by  the  act  of  Congress  approved 
March  2,  1903.  Immediately  following  these  conferences  and  public 
discussions  of  bills  proposed,  two  acts  were  passed  by  the  Philippine 
Commission  which  seem  to  have  removed  most  of  the  difficulties  in 
the  way  of  the  successful  inauguration  of  the  new  monetary  system. 

It  was  found,  as  a  result  of  experience  in  the  islands,  that  many 
business  men,  esjDecially  exporters  who  were  buying  in  the  interior 
products  for  exportation,  and  the  large  employers  of  labor  who 
expended  considerable  sums  of  money  regularly  in  the  payment  of 
wages,  as  well  as  other  people  who  employed  labor  on  a  small  scale 
and  purchased  supplies  for  their  daily  consumption,  were  making  use 
by  preference  of  the  Mexican  dollars  and  the  other  local  currency 
because  it  was  cheaper,  and  they  were  thus  hindering  seriously  the 
general  use  of  the  new  coins.  Moreover,  under  the  influence  of  these 
classes  in  the  community,  whenever  the  rate  of  exchange  turned 
slightly  in  favor  of  the  islands,  there  was  a  tendency  toward  the 
reimportation  of  Mexican  dollars  which  had  previously  been  exported. 

To  meet  these  difficulties  the  Philip2:)ine  Commission,  as  has  been 
suggested,  passed  two  laws;  the  first,  a  measure  prohibiting  abso- 
lutely the  importation  of  Mexican  currency,  Spanish-Filipino  cur- 
rency, or  any  other  metallic  currency  which  is  not  upon  a  gold  basis, 
with  proper  exception  of  small  amounts  in  the  pockets  of  travelers; 
the  second,  an  act  restricting  after  a  certain  fixed  date  in  the  future 
the  use  of  all  moneys,  excei)ting  the  legal-tender  currency,  by  im- 
posing a  tax,  which  was  to  increase  in  rate  as  the  months  went  by, 
upon  all  checks,  drafts,  notes,  bonds,  bills  of  exchange,  and  other 
written  contracts  of  every  description  made  payable  in  whole  or  in 
part  in  the  former  local  currency,  as  well  as  a  tax  upon  bank  deposits 
and  upon  the  conduct  of  business  of  any  description  in  the  old  local 
currency,  proper  exceptions  being  made,  of  course,  for  contracts 
previously  entered  into,  deposits  for  the  payment  of  old  contracts, 


22        GOLD  STANDARD  TN  INTERNATIONAL  TRADE. 

bills  of  exchange,  or  checks  or  other  contracts  for  the  purpose  of 
exporting  Mexican  dollars,  etc. 

In  the  Manila  American  of  September  11,  1904,  is  the  following 
editorial  covering  the  same  ground  fully : 

Vice-Governor  Icle,  secretary  of  finance  and  justice,  has  given  out  in  bis  finan- 
cial statement  for  August  that  there  is  sufficient  Philippine  currency  in  circula- 
tion in  the  islands  to  meet  all  demands,  and  that  the  government  is  prepared  to 
supply  all  needs  in  the  conduct  of  insular  commerce  on  the  new  basis. 

While  the  work  of  inti'oducing  the  new  currency  has  been  attended  by  many 
discouragements  and  vicissitudes,  it  is  remarkable  how  successfullj'^  the  war 
against  the  fiat  money  has  been  waged  and  i)i  a  few  months  to  what  extent  the 
new  currency  has  found  its  way  into  circulation. 

The  success  attained  is  largely  due  to  the  fixed  purpose  of  the  Government  to 
carry  into  effect  the  currency  policy,  and  the  fact  that  no  avenue  for  the  distri- 
bution of  the  new  coin  and  no  course  for  the  discouragement  of  the  old  one  has 
been  overlooked  in  the  campaign. 

This  success  is  worthy  of  special  deference,  since  the  great  mass  of  the  people 
offered  little  or  no  encouragement  or  cooperation  and  rather  assumed  a  preju- 
diced position  against  the  passing  of  the  fiat  money.  This  prejudice  is  being 
rapidly  overcome  and  the  bright,  new  Conant  dollar  is  to-day  the  favorite  wliere 
a  choice  is  offered,  even  of  the  most  ignorant. 

It  seems  clear,  however,  that  no  further  legislation  will  be  needed 
beyond  minor  measures  to  meet  special  needs,  such  as  small  changes 
in  the  rate  of  buying  or  selling  exchange,  of  receiving  old  copper 
coins,  etc.  The  government  of  the  Philippine  Islands  is  certainly  to 
be  congratulated  upon  having  established  in  full  vigor  a  gold-stand- 
ard system  adapted  to  tlie  needs  of  the  people  within  about  a  year 
from  the  time  when  the  new  coins  were  first  introduced  into  the 
islands.  Rarely  has  any  country  accomplished  so  great  a  reform  so 
promptly  and  with  so  slight  disturbance  of  business. 

THE    CURRENCY    OF    PANAMA. 

The  completion  of  negotiations  between  the  United  States,  the 
French  Canal  Company,  and  the  Republic  of  Panama  for  the  con- 
trol by  the  United  States  of  the  construction  of  the  Panama  Canal 
made  it  imi)ortant,  in  the  opinion  of  the  Commission  on  International 
Exchange,  that  some  action  should  be  taken  to  insure  the  use  of  a 
sound  currency  in  the  construction  of  the  canal.  The  matter  was 
considered  to  be  of  considerable  importance  from  the  standpoint  of 
the  cost  of  the  canal,  because  uncertainty  as  to  the  character  of  the 
currency  emj)loyed  would  not  only  involve  the  risk  of  injustice  in 
the  wages  paid  to  labor,  but  might  add  greatly  to  the  amounts 
charged  by  contractors  for  services  rendered  in  order  to  protect 
themselves  against  the  consequences  of  fluctuations  in  the  gold  value 
of  the  money  employed  by  them  in  local  expenditures  on  the  Isthmus. 
The  fact  that  the  work  of  constructing  the  canal  would  bring  the 
officers  and  employees  of  the  United   States  into  frequent  contact 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.         23 

with  tho  cilizoiis  of  l*anaiiia  made  it  dosirahle  also,  in  the  opinion 
of  our  Comniissioii,  (hat  some  cU'gree  of  harmony  shoiihl  he  brought 
about  between  the  currency  enipk)yed  in  the  canal  strip  under  the 
control  of  the  TTnited  States  and  that  employed  in  the  Eepnblic  of 
Panama. 

The  (lovernment  of  Panama  showed  from  the  beginning  a  dis- 
position to  meet  the  wishes  of  the  TTnited  States  and  to  establish  a 
sound  currency  upon  the  gold  basis.  The  evils  suffered  under  the 
fluctuating  currency  previously  in  circulation  in  Panama  had  already 
led  to  a  large  use  of  United  States  money  on  the  Isthmus  and  to  a 
strong  realization  of  the  importance  of  establishing  a  monetary  sys- 
tem based  upon  gold.  Several  bills  on  the  subject  were  pending  in 
the  Congress  of  Panama  during  the  spring,  but  failed  of  enactment 
because  of  differences  of  opinion  in  regard  to  the  rate  at  which  the 
old  silver  currency  should  be  converted  into  the  new,  and  in  regard 
to  other  details  of  the  proposed  change.  The  fact  that  the  Govern- 
ment of  the  United  States  should  interest  itself  promptly  in  securing 
harmony  between  the  currency  systems  of  the  canal  strip  and  the 
Republic  of  Panama  was  set  forth  for  the  first  time  in  a  memoran- 
dum regarding  the  currency  of  Panama  which  was  submitted  by  the 
Commission  on  International  Exchange  to  the  Secretary  of  War 
under  date  of  March  2(5,  190-t,  and  which  will  be  hereafter  printed 
as  an  appendix  to  this  report. 

This  memorandum  did  not  undertake  to  decide  between  several  dif- 
ferent systems  which  were  suggested,  but  simply  to  emphasize  the 
importance  of  cooperation  l^etween  the  Governments  of  the  United 
States  and  the  Republic  of  Panama.  Subsequently,  in  the  latter  part 
of  April,  the  Commission,  through  one  of  its  members,  was  requested 
by  the  President  and  Secretary  of  War  to  prepare  a  definite  project 
on  the  subject.  This  project  was  submitted  in  a  memorandum  en- 
titled, ''  Suggestions  regarding  the  system  of  currency  to  be  estab- 
lished in  the  Panama  Canal  Zone,"  which  was  transmitted  to  Secre- 
tary Taft  under  date  of  May  19,  1904.  The  sul)ject  was  taken  up 
actively  by  the  Secretary  of  State  and  the  Secretary  of  War  early 
in  June  because  of  the  pending  departure  of  Mr.  John  Barrett,  the 
minister  of  the  Ignited  States  to  Panama,  who  desired  to  know  what 
representations  he  should  make  on  the  subject  to  the  Government  of 
the  Republic.  As  a  result  of  several  conferences  at  the  State  Depart- 
ment and  the  War  T)ej)artment  the  Government  of  Panama  was  asked 
to  designate  a  commission  to  confer  with  the  authorities  of  the  United 
States  on  the  subject,  in  accordance  with  the  suggestion  originally 
made  hy  the  Commission  on  International  Exchange. 

The  Government  of  Panama  promptly  complied  with  this  request 
by  designating  as  its  commissioners  the  Hon.  Ricardo  Arias  and  Dr. 
Eusebio  A.  Morales,  who  were  already  in  New  York  in  connection 


24  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

with  the  disposition  of  the  money  paid  by  the  Government  of  the 
United  States  for  the  canal  franchise.  Acting  under  authority  of 
their  Government  and  by  invitation  of  the  Secretary  of  War,  the 
commissioners  of  Panama  met  several  officials  of  the  Government  of 
the  United  States  at  the  office  of  the  Secretary  of  War  on  Saturday, 
June  11,  1904.  There  were  present  at  this  conference  the  Secretary 
of  War,  the  two  commissioners  of  the  Republic  of  Panama,  their 
counsel,  Mr.  William  Nelson  Cromwell;  the  minister  of  the  United 
States  to  Panama,  Mr.  Barrett ;  the  chairman  of  the  Canal  Commis- 
sion, Admiral  John  G.  Walker;  the  legal  adviser  of  the  Canal  Com- 
mission, Judge  Charles  E.  Magoon;  the  Chief  of  the  Bureau  of  Insu- 
lar Affairs  of  the  AVar  Department,  Col.  Clarence  R.  Edwards;  and 
Mr.  Conant,  as  a  representative  of  the  Commission  on  International 
Exchange. 

The  desirability  of  harmony  between  the  United  States  and  the 
Republic  of  Panama  in  establishing  a  sound  monetary  system  on  the 
Isthmus  was  forcibly  set  forth  by  the  Secretary  of  War,  and  was  cor- 
dially admitted  by  the  commissioners  of  the  Republic  of  Panama.  A 
general  discussion  followed  as  to  the  best  method  of  establishing  and 
maintaining  a  monetarj^  system  acceptable  to  all  j)arties  in  interest. 
The  Secretary  of  War  emphasized  the  importance  not  merely  of 
establishing  the  gold  standard,  but  of  providing  for  an  adequate  gold 
reserve  to  protect  any  subsidiary  silver  which  might  be  issued.  The 
commissioners  of  Panama  objected  to  setting  aside  a  large  sum,  upon 
the  ground  that  (he  money  was  not  available.  Of  the  $10,000,000 
received  from  the  United  States,  they  stated  that  $6,000,000  was  dedi- 
cated by  their  new  constitution  to  posterity.  It  was  the  intention, 
they  declared,  to  invest  this  money  in  a  permanent  form  and  to  apply 
only  the  interest  to  current  expenditures  of  the  Government  of 
Panama.  The  remaining  portion  of  the  money  paid  by  the  United 
States  for  the  Panama  Canal  franchise,  they  declared,  was  already 
appropriated  for  education,  important  public  works,  and  similar  pur- 
])oses.  The  Secretary  of  War  insisted  strongly,  however,  upon  the 
setting  aside  of  a  gold  reserve  to  protect  the  subsidiary  silver,  if  the 
money  adopted  by  the  Republic  of  Panama  were  to  be  employed  by 
the  Panama  Canal  Commission.  The  commissioners  of  the  Republic 
asked  time,  therefore,  to  consult  their  Government  on  this  subject,  and 
an  adjournment  was  taken  for  one  week. 

At  the  conference  of  June  18  the  commissioners  of  Panama  sub- 
mitted a  proposal  that  the  reserve  to  be  set  aside  should  be  15  i)er 
cent  of  the  face  value  of  all  the  silver  to  be  coined.  It  was  suggested, 
on  behalf  of  the  Commission  on  International  Exchange,  that  if  so 
small  a  reserve  were  pi'ovided  it  should  at  least  be  sti-engthened  by 
the  addition  of  the  seigniorage  profits  on  the  coin  minted  from  new 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  25 

bullion.  This  proposition  was  supported  by  the  Secretary  of  War 
and  was  accepted  by  the  commissioners  of  the  Republic.  At  a 
final  meeting  on  Monday,  June  20,  a  letter  was  drafted  by  the  Sec- 
retary of  War,  addressed  to  the  commissioners  of  the  Republic  of 
Panama,  stating  that  he  understood  that  a  measure  was  pending  in 
the  national  convention  of  the  Republic,  conforming  in  its  general 
terms  to  the  plan  which  had  already  been  discussed  between  himself 
and  the  commissioners,  and  that  if  this  plan  was  adopted,  afe  outlined 
in  this  letter,  the  AVar  Department  w^ould  agree  to  employ  the  cur- 
rency of  the  Republic  on  the  Isthmus  and  to  cooperate  with  the 
Government  of  Panama  in  so  arranging  drafts  upon  the  canal  funds 
in  the  United  States  as  to  prevent  excessive  fluctuations  in  exchange. 
This  proposal  was  accepted  by  the  commissioners  of  Panama  on 
behalf  of  their  Government,  and  an  act  w^as  approved  by  the  Presi- 
dent of  that  Republic  on  June  28,  1904,  embodying  this  agreement. 

The  substance  of  the  plan  agreed  upon  between  the  commission- 
ers of  Panama  and  the  Secretary  of  War  was  that  a  gold  coin, 
to  be  known  as  the  "  balboa,"  of  the  same  weight  and  fineness  as  the 
gold  dollar  of  the  United  States,  should  be  the  standard  of  value  in 
Panama ;  that  the  gold  cun-ency  of  the  United  States  should  be  legal 
tender  there;  that  provision  should  be  made  by  the  Republic  of 
Panama  for  the  issue  of  fractional  silver  to  the  face  value  of  $1,500,000 
in  gold,  and  that  upon  the  request  of  the  Panama  Canal  Commission, 
if  the  construction  of  the  canal  shoAved  it  to  be  necessary,  there  should 
be  executed  from  time  to  time  additional  coinage  of  fractional  silver 
to  an  amount  not  exceeding  the  face  value  in  gold  of  $1,500,000.  Par- 
ity of  all  the  silver  coined  is  to  be  maintained  by  the  deposit  in  some 
bank  in  the  United  States  of  15  per  cent  of  the  nominal  value  of  such 
coin,  with  the  addition  to  such  deposits  of  the  net  seigniorage  on  such 
amount  as  maj'  be  coined  at  the  request  of  the  Canal  Commission. 

This  plan  departs  from  the  recommendations  of  the  Commission 
on  International  Exchange  and  from  the  currency  system  adopted  in 
the  Philippines,  in  makiug  the  unit  of  value  equal  to  $1  in  American 
gold  coin  instead  of  50  cents.  The  silver  coins  provided  for,  how- 
ever, are  nearly  the  same  in  size  as  those  provided  for  in  the  Pliilij)- 
pines.  The  largest  of  these  silver  coins  will  be  of  about  the  size  of 
an  American  silver  dollar,  but  will  have  in  Panama  the  value  of  50 
cents  in  American  gold.  It  will  weigh  25  grams  (385.8  grains)  nine- 
tenths  fine,  and  is  therefore  coined  at  about  the  ratio  of  30  to  1. 
While  it  will  represent  50  cents  in  Panama  currency,  instead  of  a 
complete  unit  of  value,  as  in  the  Philippines,  this  coin  is  specifically 
denominated  by  the  new  law,  the  "  peso,"  in  conformity  with  the 
existing  coinage  in  circulation  on  the  Isthmus,  of  which  the  peso  is 
the  unit,  and  whose  present  gold  value,  while  fluctuating  with  the 


26  GOLD    STANDARD    IN    INTERNATIONAL   TRADE. 

price  of  silver  bullion,  is  only  a  little  below  50  cents  in  United  States 
gold.  Thus,  while  the  American  dollar  has  become  the  standard  of 
value,  the  local  subsidiary  currency  is  so  nearly  adjusted  to  old  con- 
ditions that  prices  and  wages  will  not  be  affected  in  the  drastic  man- 
ner in  wdiich  they  might  be  by  the  adoption  of  a  subsidiary  coinage 
exactly  the  same  as  that  of  the  United  States. 

The  conunissioners  of  the  llepublic  of  Panama  have  already  made 
ari'angements  for  the  execution  of  jiroper  dies  for  their  new  coinage 
l)y  the  officials  of  the  United  States  mint  at  Philadelphia.  A  part  of 
their  new  coinage  will  soon  be  executed,  but  it  will  not  be  necessary 
for  the  Canal  Connnission  to  use  a  large  quantity  on  the  canal  work 
until  the  surveys  have  been  more  nearly  completed  and  contracts 
actually  made  for  the  execution  of  the  w^ork.  By  that  time  the  coin- 
age agreed  upon  for  the  Republic  will  probal^ly  be  completed,  and 
the  offiicers  of  the  United  States  will  be  in  a  position  to  determine 
whether  additional  amounts  of  subsidiary  silver  will  be  required  to 
]:>rovide  an  adequate  circulating  medium  imder  the  agreement  made 
w  ith  the  Secretary  of  War. 

STABILITY  OF  EXCHANGE. 

The  essential  object  for  which  the  present  Commission  w^as  ap- 
pointed was  referred  to  by  the  President  of  the  United  States,  in  his 
message  to  Congress,  as  being  to  procure  "  such  measures  as  will  tend 
to  restore  and  maintain  a  fixed  relationship  between  the  moneys  of  the 
gold-standard  countries  and  the  silver-using  countries."  Of  the  sev- 
eral measures  to  secure  this  object  which  have  been  considered  by  the 
Commission  the  one  most  important  and  most  permanent  in  its 
influence  has  been,  in  their  opinion,  the  adoption  of  the  gold  exchange 
standard  in  silver-using  counti'ies.  Incidentally,  however,  it  is 
obvious  that  any  measure  which  should  tend  to  promote  stability  in 
the  gold  value  of  silver  bullion  would  tend  to  check  the  fluctuations  in 
exchange  between  gold  and  silver  countries,  wdiich  have  been  so  dis- 
lur-bing  to  commerce  for  a  generation  and  which  proved  especially 
demoralizing  to  the  commerce  of  China  and  Mexico  during  1901,  1002, 
and  the  spring  of  1J)03. 

As  pointed  out  by  this  Commission  in  its  report  of  last  year,  the 
exchange  between  gold  and  silver  countries  now  depends  funda- 
mentally upon  the  (liictuations  in  gold  price  of  silver.  Any  step 
contributing  toward  stability  in  the  price  of  silver  bullion  would, 
therefore,  in  itself  tend  to  diminisli  the  fluctuations  of  exchange,  inde- 
pendently of  the  more  important  object  of  se])ai'ating  the  monetary 
systems  of  the  silver-using  counti'ies  from  the  silver  standard  and 
placing  them  on  the  gold  standard.  Sonu^  misunderstanding  of  the 
objects  of  the  Commission   in   this  regai'd  seemed   to  arise  in  some 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.        27 

quarters  hecause  of  failure  to  distinguish  between  efforts  previously 
made  to  raise  (he  jirice  of  silver  and  the  efforts  made  by  this  Commis- 
sion to  promote  stability  in  the  price.  Stability  in  the  price  of  bul- 
lion is  im]:)ortant  because  it  carries  with  it  comparative  stability  in 
exchange.  In  order,  therefore,  to  [)revent  paralysis  of  trade  between 
the  silver-using  countries  and  the  gold  countries,  the  Commission  on 
International  Exchange  suggested  to  the  European  powers  with 
whose  representatives  they  consulted,  an  effort  to  reduce  the  violent 
fluctuations  in  the  bullion  market  by  making  such  purchases  of  silver 
as  are  actually  required  for  coinage  purposes  with  greater  regularity. 
As  shown  in  our  previous  report,  the  soundness  of  this  principle  was 
generally  recognized  by  the  governments  with  whom  consultations 
were  held. 

It  is  gratifying  to  report  that  this  policy  had  borne  fruit  in  dimin- 
ishing fluctuations  of  exchange  between  gold-standard  countries  and 
silver-using  countries.  The  most  important  influence  exerted  in  this 
respect  has  been,  by  the  council  for  India,  at  London,  in  making  its 
purchases  of  silver  bullion  to  meet  the  coinage  demands  of  British 
India.  A  letter  from  Sir  James  Mackay,  a  member  of  this  council,  to 
the  chairman  of  this  Connnission,  states: 

I  think  you  will  observe  t'roni  the  prices  which  the  Secretary  of  State  for  India 
paid  for  the  silver  which  he  bought  tluit  regularity  has,  as  far  as  possible,  been 
observed,  so  as  to  pre\ent  extreme  fluctuations. 

Considering  that  the  value  of  the  silver  bought  by  the  Secretary  of  State  since 
the  C.th  of  March,  1000.  up  to  the  end  of  Sejitember,  l!)(t4,  has  amounted  to  twelve 
millions  sterling,  the  variation  in  prices  has,  I  thinli  you  will  see,  been  extremely 

SJUilll. 

The  figures  presented  by  Sir  James  Mackay  give  only  the  average 
l^rice  paid  for  difl'erent  lots  of  silver  purchased.  They  show  that 
while  the  prices  paid  in  1908  and  1904  were  lower  than  those  paid  in 
1900,  the  differences  between  the  average  maximum  and  mininuun 
prices  were  less.  The  lowest  average  price  paid  in  1903  was  23f| 
pence  between  December  12  and  December  19;  the  highest  average 
price  for  a  given  purchase  was  27|-|-  pence  between  September  15  and 
October  2,  1903.  The  average  of  the  prices  paid  during  the  period 
from  September  1.5,  1903,  to  February  20,  1904,  representing  the  pur- 
chase of  35,052,935  ounces,  was  2()||  pence.  Purchases  were  then  sus- 
pended until  May  2,  1904.  The  average  price  for  18,800,644  ounces 
purchased  between  that  date  and  August  27,  1904,  or  nearly  four 
months,  was  2()  f|  pence  or  about  two-thirds  of  a  penny  less  than  the 
average  for  the  previous  series  of  purchases. 

The  figures  just  presented  of  the  purchases  for  the  coinage  of  Brit- 
ish India  show  a  steadiness  in  the  price  of  silver  which  has  been  rare 
during  the  past  decade.    They  are  not  absolutely  conclusive,  because 


28 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 


they  represent  for  each  lot  of  silver  purchased  the  average  of 
slightly  varying  prices  paid  over  a  period  of  a  week  or  more.  More 
conclusive  evidence  of  the  comparative  steadiness  Avhich  has  been 
attained  in  the  price  of  silver  bullion  is  afforded  by  the  actual  maxi- 
mum and  minimum  quotations  in  the  London  market.  These  are  pre- 
sented by  months  in  the  table  below : 

Quotations  of  silver  at  London. 


Month. 


1902 


Highest.   Lowest 


1903 


Highest.   Lowest. 


1904 


Highest.   Lowest 


January . . 
February - 

March 

April 

May 

June 

July 

August  -  - . 
September 
October  .  _ 
November 
December. 


Pence. 

sex's 

25/e 
241 
24i 
24/b 

24/b 
2ii 

OQll 

23i 


Pence. 

251 

24ia 

23A 

23x^5 

23M 

24t'b 

24/e 

23i% 

2Si 

21H 

21ii 


Pence. 
22f 
22t^e 
22i| 
25i5 
25J 

24^8 

25i 
26J 
27A 
28i 
27f 
26t's 


Pence. 
2114 
21f 
22i 
22f 
24x% 
24i- 
24i 
25^ 
26i 
27t'b 
26i^ 
25A 


Pence. 
25i'i 
27} 
261 
25J 
25H 
264 
27 
27 
26J 
26i| 


Pence. 
25J 
251 

24A 

25fr 

25A 


This  table  shows  that  the  price  of  silver  has  varied  from  January 
1,  1904,  to  the  date  of  this  report  w^ithin  the  limits  of  27-J  pence  and 
24 tV  pence,  and  since  April  26,  1904,  has  been  uniformly  above  25 
pence.  The  fluctuations  in  1901  were  from  a  maximum  of  29 -j% 
pence  to  a  minimum  of  24||  pence;  in  1902  from  26yV  to  21|^  pence; 
and  in  1903  from  284-  to  21|^  pence,  showing  a  variation  this  year  of 
only  about  10  per  cent,  as  compared  with  variations  of  20  per  cent  or 
more  in  other  years. 

The  fact  that  exchange  with  the  silver-using  countries  has  been 
materially  improved  by  this  greater  steadiness  in  the  market  for  sil- 
ver bullion  is  set  forth  in  respect  to  China  in  the  annual  report  of  the 
American  Asiatic  Association,  and  credit  is  therein  given  to  the 
recommendations  of  the  Commission  on  International  Exchange. 
The  same  tendency  to  greater  steadiness  has  been  true  of  exchange 
between  London  and  the  British  and  French  dependencies  in  Asia, 
and  betw^een  New  York  and  Mexico.  While  these  exchanges  have  a 
tendency  to  follow  the  bullion  market,  it  often  happens  that  an  active 
demand  for  coined  money  may  for  a  time  raise  the  rate  above  the 
bullion  value  of  the  metal,  while  on  the  other  hand  an  excess  of  such 
money  may  depress  the  exchange  rate  relatively  to  the  price  of  silver 
bars.  In  spite  of  these  modifying  influences,  exchange  betAveen  New 
York  and  Mexico  has  fliu^tuated  during  the  curi'ent  calendar  year 
only  within  the  limit  of  220  and  213,  and  for  the  past  five  months  has 
not  departed  more  than  three  points  from  216.  These  conditions  are 
in  marked  contrast  with  those  of  1902  and  1903,  Avhen  the  range  of 
fluctuations  was  from  277^  to  214],  or  a  variation  of  more  than  20 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 


29 


per  cent.     The  niaxiimiin  and   niininunii  quotations  in  each  month 
for  the  past  three  years  are  shcjwn  bek)w : 

Quotations  of  Mexican  exchange. 


Month. 


.laiiuaiy .  _ 
February . 

March 

April 

May 

June 

July 

Aiigust 

September 
October  .. 
November 
December 


1902 


Maximum.  Minimum 


222 
225} 

227 
241 

236i 
2:545 
240s 
244.( 
2;i()' 
258.( 
277i 
269} 


216} 

221} 

22;^} 

225| 
233 
232i 

2:«§ 

240} 

242 

250 

252i 

261 


1903 


Maximum.  Minimum 


264i 
263 

2&5 
2H2 
236 
244} 
243 
230i 
226 
222 
223i 
233 


280 
218 
227 
234 
230i 
21 4  J 
215" 
215i 
218 
222 


1904 


Maximum.  Minimum 


22(5 
219 
220 

230 
223i 
216i 
216 
216 
216 
216 


221 
209 
216 
220 
217 
213 
216 
216 
216 
216 


The  result  of  this  greater  stability  of  exchange  has  been  that  in 
the  Philippines  the  transition  from  the  silver  to  the  gold  standard 
has  been  facilitated,  and  in  silver-using  countries  complaints  have 
been  much  less  acute  than  before  regarding  interruptions  to  ti-ade 
with  gold  countries.  In  all  these  countries  risk  of  loss  has  been 
diminished  in  malving  payments  for  imports,  which  threatened  almost 
to  paralyze  trade  at  the  close  of  1902  and  the  beginning  of  1903, 
when  appeal  was  made  by  the  (jovernment  of  Mexico  to  the  United 
States  to  aid  in  stabilizing  the  exchange  between  Mexico  and  China 
on  the  one  hand  and  the  gold-standard  comitries  on  the  other.  It 
nevertheless  remains  true,  as  declared  in  the  report  of  the  Ameri- 
can Asiatic  Association,  already  quoted,  that  "  the  menace  of  the 
possibility  of  violent  fluctuations  continues,  however,  to  hang  over 
commercial  transactions  between  the  gold-standard  countries  and  the 
Orient,"  and  that  this  menace  can  be  permanently  removed  only  by 
definite  and  comprehensive  steps  in  the  silver  countries  for  the  adop- 
tion of  a  fixed  gold  standard. 

Hugh  H.  Hanna, 


Charles  A.  Conant, 
Jeremiah  W.  Jenks, 

Commissioners. 


The  Secretary  of  State, 

Washington,  D.  G. 


REPORT  OF  JEREMIAH  W.  JENKS,  COMMISSIONER  DESIGNATED 
BY  THE  COMMISSION  ON  INTERNATIONAL  EXCHANGE,  WITH 
THE  APPROVAL  OF  THE  PRESIDENT,  TO  CARRY  ON  THE  WORK 
OF  THE  COMMISSION  IN  THE  FAR  EAST. 


After  the  return  of  the  Coinniission  on  International  Exchange  in 
the  fall  of  1903  from  the  work  in  Eiiro])e,  as  explained  in  detail  in  the 
earlier  report  of  the  CoJinniission,  I  was  designated  by  the  Connnission 
to  continue  its  work  in  the  Far  East.  Acting  under  special  instruc- 
tions issued  by  the  Secretary  of  State,  October  24,  1903,  as  printed  on 
page  97  of  the  previous  report,  the  work  was  entered  upon  immedi- 
ately. 

JAPAN. 

On  my  arrival  in  Japan  a  special  conmiission  of  twelve  members, 
Avith  Mr.  Sakatani,  the  vice-minister  of  finance,  as  the  chairman,  was 
appointed  to  discuss  in  detail  the  plans  of  the  American  Commission. 
The  other  members  of  the  Couimission  consisted  of  the  presidents  of 
the  Bank  of  Japan  and  of  other  leading  banks  of  the  country,  together 
with  representatives  of  the  departments  of  foreign  affairs,  finance, 
conmierce  and  industry,  agriculture,  etc.  A  more  representative  busi- 
ness commission  or  one  with  a  stronger  personnel  could  not  have  been 
selected.  The  names  of  the  members,  with  their  positions,  as  well  as 
the  formal  resolutions  A\hich  they  adopted  at  the  close  of  the  confer- 
ences are  printed  on  pnge  1()2  of  the  preceding  report.  The  following 
])aragraph  from  that  report  should  be  reprinted  here: 

'•  In  view  of  the  present  condition  of  China,  it  is  too  much  to  expect 
that  the  currency  can  be  started  at  once  on  a  perfect  system,  and  as  it 
is  considered  highly  disadvantageous  to  delay  the  said  reform  on  that 
account,  it  is  advisable  to  adopt  the  suggestions  of  the  American 
Commission  as  a  matter  of  expediency.  But  it  must  be  admitted 
that  the  utmost  skill  and  care  are  needed  to  overcome  the  great  diffi- 
culties which  necessarily  accompany  the  operation  of  the  system." 

It  will  doubtless  aid  in  understanding  the  situaticm  in  the  Far  East, 
and  the  nature  of  the  difficulties  which  the  American  Connnission  had 
to  overcome  in  order  to  secure  the  approval  of  its  plans,  to  indicate,  in 
brief,  the  nature  of  some  of  the  discussions  held  in  Japan. 

The  commissioners  appointed  by  the  Japanese  Government  seemed 
:it  first  somewhat  divided  in  their  opinions.  One  group  was  strongly 
inclined  to  agree  with  the  conclusions  of  the  English  connnission  and 
30 


GOLD   STANDARD    IN    INTP:RN ATIONAL    TRADE.  31 

to  reconinieiul  that  China  adopt,  in  the  first  instance,  a  uniform  mone- 
tary system  on  a  silver  basis,  leaving  the  question  of  its  establish uient 
on  a  gold  basis  for  the  future,  with  the  understanding,  nevertheless, 
that  it  would  be  desirable  for  thv  country  to  reach  the  gold  basis  as 
soon  as  that  might  be  practicable.  The  arguments  used  to  support 
this  view  were  not  urged  strongly,  but  weiv  apparently  the  same  in 
substance  as  those  heard  in  Eur()[)e  and  were  simi)ly  to  the  etl'ect  that 
China  did  not  have  a  gold  reser\e  and  that  it  would  be  difficult  for  a 
gold  reserve  to  be  secured  Avithin  a  brief  time.  It  was  further  urged 
that  the  adoption  of  a  system  on  a  gold  basis  would  require  more 
skilled  financiers  than  China  possessed,  and  that  there  would  probably 
be  practical  difficulties  in  persuading  China  to  engage  proper  for- 
eign help  and  give  to  such  foreigners  a  sufficient  degree  of  discretion. 

Others  of  the  commission  thonght  it  w^oidd  be  wiser  for  China  to 
adopt  a  monetary  system  with  a  gold  basis  from  the  beginning. 
Their  idea  was,  however,  that  there  should  be  no  half-way  measures, 
but  that  the  new  coins  issued  by  China  or  the  national-bank  notes 
issued  by  a  new^  Chinese  national  bank  to  be  established  shoidd  be 
redeemable  in  gold  within  the  counti'y  itself  at  the  option  of  the 
holder  of  the  notes  or  of  the  silver  coins. 

While  these  views  w^ere  indicated  and  incidentally  outlined  through 
(piestions  and  discussions,  the  main  part  of  the  time  Avas  taken  up  by 
the  commission  in  listening  to  the  plans  of  the  American  Commission, 
and  in  questioning  and  discussing  the  difficulties  and  merits  of  those 
plans.  The  connnission  consisting  largely  of  bankers,  special  em- 
phasis was  naturally  laid  upon  the  questions  Avhich  Avere  connected 
Avith  foreign  exchange.  The  practical  difficulty  was  emphasized  of 
fixing  a  rate  of  exchange  at  Avhicli  the  Chinese  Government  treasury 
Avouhl  sell  bills  on  foreign  countries  and  of  having  that  rate  some- 
Avhat  above  what  might  be  considered  the  normal  banking  rate,  in 
accordance  Avith  the  system  adopted  in  the  Philippine  Islands  and 
i-ecommended  by  the  American  Commission  in  Europe,  as  ex^jlained 
in  the  previous  report  on  pages  130  et  seq.  A  someAvhat  detailed 
discussion  of  this  subject,  hoAA'CA^er,  seemed  to  convince  the  com- 
mission that  if  the  management  of  the  system  were  put  into  the 
hands  of  thoroughly  skilled  financiers,  Avho  understood  the  subject 
fully,  the  plan  could  be  carried  through  successfully.  The  experience 
of  the  Phili])pine  Islands  during  the  last  yeav  has  doubtless  served 
to  confirm  the  opinion  of  ail  persons  familiar  Avith  the  subject,  that 
the  plans  of  the  American  Commission  in  this  regard  are  entirely 
practicable. 

The  difficulties  aaIucIi  might  possibly  arise  from  an  unfavorable 
balance  of  trade  in  China  did  not  impress  the  members  of  the  Japan- 
ese commission  to  the  same  extent  as  they  did  many  of  the  members 
of  the  European  commissions.     The  reason  for  this  doubtless  is  that 


32  GOLD    STANDAKD    IN    INTERNATIONAL    TRADE. 

Japan  herself,  iincler  the  leadership  of  several  of  these  same  men  who 
Avere  members  of  this  commission,  had  snccceded  in  maintaininjj^  the 
gold  standard  in  Japan  in  the  face  of  an  adverse  balance  of  trade  for 
several  years,  so  that  they  understood  thoroughly  well  the  practical 
measures  Avhicli  it  might  be  desirable  or  even  necessary  to  take  in 
order  to  secure  the  end  desired,  of  maintaining  unquestionably  the 
parity.  The  commission  in  no  way  miniuiized  the  difficulties;  in  fact, 
the  practical  nature  of  those  difficulties  and  the  exact  way  in  wliicli 
they  would  arise  were  pointed  out  with  a  clearness  and  precision 
Avhicli  was  not  surpassed  in  any  of  the  discussions  elsewhere.  Possi- 
bly, however,  no  other  country  had  had  the  same  experience  in  this 
regard  as  had  Japan,  and  nowhere  else  were  the  methods  to  be  fol- 
lowed pointed  out  in  quite  the  same  detail  as  in  the  discussions  in- 
Tokyo. 

It  has  already  been  noted  that,  at  the  close  of  the  discussions, 
the  Japanese  connnission  adopted  a  series  of  favorable  resolutions. 
While  intimating  that  the  single  gold-standard  system,  like  the  one 
for  example  in  Japan,  is  the  end  which  it  is  desired  to  reach,  it 
declared,  nevertheless,  that  in  view  of  the  present  conditions  in  China 
it  is  advisable  to  adopt  the  suggestions  of  the  American  Commission 
as  a  matter  of  expediency.  Attention  was  of  course  called  to  the 
difficulties  in  the  Avay  and  to  the  need  of  expert  help  of  the  highest 
quality. 

This  direct  indorsement  of  the  views  of  the  American  Commission 
and  the  cordial  treatment  of  this  whole  subject  by  the  Japanese 
Government  could  not  fail  to  have  a  good  influence  upon  the  Chinese 
Government  in  its  discussion  of  a  question  which  is  of  so  great  impor- 
tance in  connection  Avith  the  welfare  of  China. 

THE  PHILIPPINES. 

The  new  Philippines  currency  for  Avhich  provision  was  made  in 
the  Philippine  coinage  act,  approved  by  the  President  March  2,  1903, 
Ijegan  its  circidation  in  the  Islands  July  23  of  that  year.  As  the-  in- 
sular treasury  began  immediately  the  payment  of  the  Government 
cmploA'ees  and  of  its  bills  to  a  considerable  extent  in  the  new  cur- 
renc}'^,  rather  large  sums  went  without  difficulty  into  circulation.  It 
soon  became  evident,  hoAvever,  that  for  many  purposes  the  old  local 
currency,  consisting  of  Spanish-Filipino  dollars  and  of  Mexican 
dollars,  was  practically  as  effectiA'^e  in  purchasing  power  in  certain 
dir(H;tions  as  Avere  the  new  Philippine  coins,  although  the  latter  were 
worth  $0.50  gold  and  the  former  Avortli  from,  say,  $0.40  to  $0.45. 
Prices  having  been  fixed  formerly  in  terms  of  the  Mexican  dollar 
Avould  naturally  remain  at  the  same  rate  unless  especial  effort  were 
made  to  change.     Inasmuch  as  it  was  more  profitable  for  the  dealers 


C40LD    STANDARD    IN    INTKKNATIONAL    TRADE.  83 

lo  receive  a  more  valuable  coin,  they  at  first  allowed  their  prices  to 
remain  the  same  in  the  new  Philijipines  currency  as  in  Mexican. 

In  conse(iuence  of  the  above  conditions  it  was  found  that  very  many 
of  the  Government  oflicials,  after  receiving  their  pay  in  the  new  coins, 
were  able  to  make  a  profit  of  from  10  to  15  per  cent  by  exchanging 
these  coins  for  Mexican  and  Spanish-Filipino  coins  and  paying  for 
their  jjurchases  of  goods,  and  especially  of  provisions  at  the  markets,  in 
the  cheaper  coins.  The  local  sellers  of  produce  were,  generally  speak- 
ing, willing  to  sell  at  the  old  rates,  although  the  European  shops  and 
occasionally  the  native  shops  demanded  the  new  coins.  In  the  latter 
case,  however,  they  frequently,  if  not  generally,  attempted  to  get  as 
many  of  them  as  they  had  formerly  demanded  of  local  dollars. 

I^ikewise  house  servants  and  laborers  in  general,  as  well  as  the 
plantation  sellers  of  hemi^  and  of  sugar,  had  not  in  the  first  four 
months  after  the  introduction  of  the  new^  coins  learned  to  any  very 
great  extent  the  advantage  that  might  come  to  them  from  demanding 
their  pay  in  the  new  currency.  This  was  the  case,  even  though  it  was 
known  by  those  wdio  had  kept  themselves  informed,  that  after  the 
1st  of  January,  1904,  the  Mexican  dollars  Avould  be  demonetized  and 
no  longer  received  by  the  Government.  A  good  many  individuals, 
however,  did  after  the  1st  of  January  demand  the  ncAV  coins,  and 
there  w^as  a  very  patriotic  movement  on  the  part  of  very  many,  if  not 
even  of  most  Government  officials  and  other  Americans,  to  pay  wages 
to  their  servants  in  these  ncAv  coins  at  the  same  rates  which  they  had 
formerly  paid  in  the  Mexican  coins,  in  order  to  encourage  the  use  of 
the  new"  money  and  to  help  the  Government. 

Importers,  government  officials,  and  a  good  many  of  the  merchants 
who  felt  that  their  interests  w^ould  be  largely  2:)romoted  by  stability 
in  the  rates  of  exchange  very  promptly  changed  their  accounts  into 
the  new  currency,  and  made  efforts  in  every  j)ossible  way  to  aid  the 
government  in  the  introduction  of  the  new  coins.  On  the  other  hand, 
exporters,  whose  interests  were  advanced  by  buying  their  goods  for 
export  in  the  old  local  currency,  very  generally  did  not  change  their 
system  of  accounting;  and  they  encouraged  the  use  of  Mexican  and 
Spanish  Filipino  coins  to  the  discredit  of  the  new  currency. 

It  had  been  part  of  the  plan  formulated  by  the  Philippines  cur- 
rency act  that  whenever  bills  of  exchange  w^ere  sold  in  Manila  against 
the  gold-reserve  fund  in  New  York,  the  new  coins  which  were  received 
m  payment  for  these  bills  of  exchange  would  be  withdrawn  from 
circulation,  and  that  this  withdrawal,  producing  a  contraction  of  the 
currency,  would  lead  to  a  fall  in  the  rates  of  exchange  in  terms  of 
the  new  currency.  During  this  earlier  period,  however,  of  the  intro- 
duction of  the  new  coins,  before  the  old  local  currency  had  become  to 
any  noteworthy  extent  exlmusted,  and  also  before  any  legal  action  had 

S.  Doc.  128,  oH-o a 


34  C40LD    STANDARD    IN    INTERNATIONAL    TRADE. 

been  taken  to  prevent  the  importation  of  Mexican  dollars  from  Hong- 
kong and  elsewhere,  this  selling  of  bills  of  exchange  against  the  gold 
reserve  in  New  York  in  order  to  maintain  the  parity  of  the  new 
Philippine  coins  did  not  Avork  exactl}'  in  the  way  that  had  been 
anticipated  under  the  law,  and  in  the  way  that  it  doubtless  Avill  work 
now  that  the  old  local  currency  is  practically  eliminated  from  cir- 
culation. 

Owing  in  part  to  the  very  large  importations  of  rice,  in  part  also 
to  the  great  scarcity  of  money  in  New  York,  which  led  the  Ncav  York 
banks  to  wish  to  secure  additional  money  for  circulation  in  that  State, 
there  was,  through  September,  October,  and  November,  1903,  a  strong 
demand  for  bills  of  exchange  on  New  York  to  be  paid  for  in  the 
l^hilippines  currency.  It  was  temporarily,  of  course,  to  be  withdrawn 
from  circulation.  These  demands  for  exchange  came  largely  from 
the  Manila  banks  which  had  either  their  main  offices  or  other  branches 
in  New  York  City.  The  readiness  of  the  people  to  continue  the  use 
of  Mexican  and  Spanish-Filipino  dollars,  and  the  ease  with  which 
JNIexican  dollars  could  be  imported,  made  it  practically  impos- 
sible to  contract  the  currency  sufficiently  by  the  sale  of  these  bills  of 
exchange  and  the  withdraAval  of  this  currency  from  circulation  unless 
some  further  means  Avere  devised  to  prevent  the  reimportation  of 
Mexican  dollars.  As  a  matter  of  fact,  owing  to  the  withdrawal  of 
these  coins  paid  for  bills  of  exchange,  there  Avere  actually  fewer 
Philippine  coins  in  circulation  among  the  people  on  the  1st  of  Janu- 
ary, 1001,  than  on  the  1st  of  December,  1903,  and  by  the  middle  of 
JanuarA^,  1901,  about  half  a  million  of  Mexican  dollars  had  been 
imported.  OAving  to  the  fact  that  the  currency  legislation  for  the 
Philippines  Avas  thus  apparently  in  certain  respects  not  Avorking  satis- 
factorily', and  that  supplementary  legislation  might  very  possibly 
be  needed,  the  Secretary  of  War  had  asked  the  member  of  the  Com- 
niission  on  International  Exchange  Avho  Avas  going  to  the  Orient,  to 
visit  the  Philippine  Islands,  there  to  take  counsel  with  the  Philippine 
Commission,  and  after  study  of  the  local  conditions  to  make  to  the 
Connnission  any  suggestions  for  legislation  Avhich  seemed  adA^isable. 

In  conse(i[uence,  on  his  arrival  in  the  Philippine  Islands  about  the 
middle  of  December,  the  American  commissioner  entered  into  a 
detailed  study  of  the  local-currency  situation  Avith  the  commission, 
particularly  Avith  the  aid  and  counsel  of  the  very  efficient  chief  of  the 
division  of  the  currency,  Mr.  E,  W.  Kemmerer.  He  visited  all  of  the 
leading  bankers  and  the  heads  of  many  of  the  leading  business  houses, 
and  talked  over  the  situation  as  fully  as  possible  with  representative 
business  men  of  various  classes  and  interests.  After  these  investiga- 
tions and  detailed  discussions  with  the  members  of  the  connnission, 
the  commission  decided  upon  further  legislative  action. 


GOLD    8TANDAKD    IN    INTERNATIONAL    TRADE.  35 

111  order  to  iikh'1  the  condilioiis  luciilioiicd  above  and  to  make  it,  on 
the  whole,  less  prolilable  to  nse  Mexican  dollars  than  to  use  (he  new 
Philippines  currency,  as  well  as  also  to  enable  (he  <;<)veriHnent  to 
briiiijf  al)Out  a  real  contraction  of  the  currency  by  the  sak'  of  bills  of 
e.\chan<»e  in  case  of  necessity,  the  followina-  action  was  taken: 

On  the  31st  of  December,  11)03,  the  Government  passed  an  act  pro- 
\i(lino-  for  the  demonetization  of  Mexican  coins,  and  statinii;  that  they 
would  no  lon^vr  be  received  by  the  (jovernment.  Spanish-Fili[)ino 
coins  were  to  be  redeemed  by  the  Government  until  July  1,  11)04,  at 
a  rate  substantially  equivalent  to  the  buying-  price  in  Mexicans  of 
gold  at  the  banks,  this  rate  to  be  changed  from  time  to  time  by  the 
Government,  in  accordance  Avith  local  conditions.  This  act  placed 
a  valuation  upon  the  Spanish-Filipino  coins  of  something  like  10  per 
cent  above  their  bullion  value.  It  Avas,  however,  felt  to  l>e  only  fair 
to  the  people  to  enable  them  to  dispose  of  their  local  Spanish-Filipino 
coins  at  substantially  the  same  rate  as  Mexican  dollars  were  w^orth. 
The  Government  agreed  likewise  to  continue  the  receipt  of  Spanish- 
Filipino  coins  in  payment  of  Government  obligations  nntil  Sep- 
tember 30,  1904 ;  after  that  it  was  to  receive  them  only  at  their  bullion 
value. 

On  the  14th  of  January,  1904,  a  second  act  was  passed  for  the  pur- 
pose of  maintaining  the  parity  of  the  Philippines  currency  by  pro- 
hibiting the  importation  into  the  I'hilippine  Islands  of  Mexican  cur- 
rency, Spanish-Filipino  cnrrency,  and  any  other  metallic  currency 
wdiich  is  not  npon  a  gold  basis.  The  penalty  for  violation  of  the  law 
was  forfeiture  of  the  entire  importation,  one-tliird  of  the  bnllion 
value  of  the  sum  so  forfeited  to  be  payable  to  the  person  upon  wdiose 
information  the  seizure  of  the  money  was  made,  the  other  two-thirds 
to  accrue  to  the  gold-standard  fund.  Money  actually  on  shipboard 
at  the  time  of  the  passage  of  the  act  was  exempted,  and  passengers 
were  permitted  to  bring  in  small  sums — first-class  passengers  to  an 
amount  not  exceeding  in  value  50  Philippine  pesos;  second-class  pas- 
sengers, a  value  of  20,  and  each  third-class  passenger  a  sum  not 
exceeding  10.  In  addition  to  the  forfeiture,  a  fine  of  not  more  than 
10,000  pesos  or  imprisonment  not  exceeding  one  year  or  both,  might 
likewise  be  imposed. 

Inasmuch  as  before  the  passage  of  this  act  it  had  proved  impossible 
to  contract  the  currenc}'  by  withdrawing  from  circulation  the  new 
Philippine  coins  paid  into  the  Treasury  in  exchange  for  bills  of  ex- 
change on  New  York,  since  any  relative  scarcity  would  be  made  up 
l)y  the  importation  of  Mexican  dollars,  it  had  become  necessary  to 
take  some  such  action  as  that  provided  for  in  this  bill.  It  was  realized, 
of  course,  by  the  Government,  that  there  might  be  more  or  less  illicit 
importation  on  account  of  the  wide  extent  of  the  coasts;  but,  in  spite 


36  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

of  that  fact,  it  was  felt  that  iiiiportatioiis  could  not  be  made  in  very 
large  sums,  and  moreover,  that,  as  soon  as  the  new  currency  was  once 
firmly  established,  there  would  be  no  further  temptation  to  evade  the 
law.  It  w^ould  not  be  possible,  therefore,  within  the  comparatively 
short  period  when  smuggling  would  be  profitable,  to  import  contrary 
to  law  sulRcient  quantities  to  affect  materially  the  establishment  of  the 
new"  system. 

It  was  thought,  however,  that  this  act  alone  might  not  prove  suffi- 
cient. So  long  as  the  old  local  currency,  Mexican  dollars,  Spanish- 
Filipino  pesos,  and  the  old  minor  coins  Avere  in  circulation  at  a  less 
value  than  the  new  Philippine  pesos,  the  effort  would  be  made  by  ex- 
porters, employers  of  labor,  and  others  buying  provisions  from  local 
dealers  to  keep  these  old  coins  in  circulation.  It  seemed  desirable,  if 
possible,  to  devise  some  means  by  which  the  new  Philippine  coins 
would  be  made  cheaper  for  use  by  the  common  people  than  the  old 
local  coins,  wdiile  at  the  same  time  they  w^ould  possess  the  added  ad- 
vantages of  a  fixed  value  in  terms  of  gold  or  of  United  States  cur- 
rency, of  well-established  ratios  of  value  among  themselves,  and  of 
the  other  advantages  which  went  with  them,  such  as  certificates,  etc. 

The  suggestion  was  made  emphatically  b}'^  many  of  the  business 
men  in  Manila,  particularly  it  seemed  by  those  wdio  would  have  the 
opportunity  of  becoming  large  holders  of  the  old  local  coins,  that  the 
Government  redeem  them  at  a  value  somewdiat  higher  than  their  regu- 
lar market  value,  the  most  common  suggestion  being  that  it  redeem 
them  at  par  with  the  new  Philippine  coins.  The  Government  felt, 
however,  that  it  was  under  no  obligation  wdiatever  to  redeem  the  Mexi- 
can coins  which  had  been  received  by  their  present  holders  at  their 
bullion  value,  and  that,  if  it  redeemed  the  Spanish-Filipino  coins 
at  thfeir  regular  circulation  value^that  is  to  say,  a  value  equal  to  the 
Mexicans  and  about  10  per  cent  above  their  bullion  value — it  would  be 
doing  fidl  justice  to  the  holders.  Anj^  price  above  that  would  stimu- 
late speculation,  would  place  an  additional  and  probably  unnecessary 
burden  upon  the  taxpayers,  would  tend  to  demoralize  markets  by  a 
sudden  change  in  prices,  and  would  probably  enable  a  comparatively 
few  of  the  more  shrewd  or  more  powerful  to  profit  at  the  expense  of 
the  mass  of  the  people. 

It  therefore  decided  that  the  most  nearly  just  plan  on  the  whole,  as 
well  as  the  one  which  could  be  carried  out  with  the  least  disturbance  to 
business,  was  to  impose  a  tax  upon  the  use  of  the  old  local  currency,  the 
tax,  however,  not  to  take  effect  for  several  months,  in  order  that  the 
Jiolders  might  have  a  fair  opportunity  of  disposing  of  coins  in  their 
])Ossession  at  reasonable  rates.  The  act  levying  such  a  tax,  together 
with  other  provisions,  Avas  passed  and  Avent  into  effect  January  27, 
11)04.     The  tax  itself,  hoAvever,  was  not  to  be  imposed  until  October  1, 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.        37 

the  rate  <»ra dually  iiK-roasing  month  by  luouth  Itoiii  1  per  cent  Octo- 
ber 1  until  it  reached  a  5  per  cent  rate  Decenibei"  ^U,  1!)()4.  Due 
exceptions  were  of  course  made  so  as  to  avoid  injustice  to  those  who 
had  made  previous  contracts  in  terms  of  the  local  currency;  also 
suitable  provisions  with  reference  to  mone3's  collected  for  purposes  of 
export,  etc. 

It  was  further  provided  that  an  announcement  published  in  all  of 
the  principal  languages  and  dialects  of  the  islands  be  prepared  and 
circulated,  which  should  explain  the  new  currency  and  the  more  im- 
l)ortant  laws  and  regulations  ])ertaining  to  its  use,  as  well  as  the 
methods  provided  for  the  withdraAval  of  the  local  currency  from  cir- 
culation. 1'hese  proclamations  were  to  be  sent  to  the  provincial  gov- 
ernors, provincial  and  municipal  treasurers,  presidents,  and  munici- 
pal councilors  throughout  the  islands,  and  were  to  be  posted  and 
advertised  as  widely  as  possible  everywhere.  These  two  acts,  so 
important  in  their  nature  and  so  effective  in  their  ultimate  results, 
are  printed  in  full  in  Appendix  B,  3,  4. 

Before  the  American  commissioner  left  the  islands,  he  was  requested 
by  the  governor  to  make  further  recommendations  regarding  any 
other  action  which  might  prove  desirable,  in  order  that  the  system 
be  carried  fully  into  effect. 

After  consultation,  therefore,  with  the  chief  of  the  division  of  the 
currency,  with  members  of  the  commission,  and  others,  it  was  further 
suggested : 

1.  That  provision  be  made  so  that  the  insular  treasurer  in  redeem- 
ing Spanish-Filipino  coins  should  receive  as  of  equal  value  with  them 
such  other  copper  coins  as  in  ordinary  use  circulated  in  the  islands  at 
a  parity  with  Spanish-Filipino  copper  coins.  This  copper  money 
was  of  course  to  a  very  considerable  extent  the  money  of  the  common 
people.  It  was  rarely  found  in  the  banks,  and  the  exchange  could 
readily  be  made  only  b}'^  the  Government  or  by  some  persons  acting 
as  agents  of  the  Government.  Of  course  such  coins  as  those  of  Brit- 
ish North  Borneo  and  of  the  Straits  Settlements,  some  of  which  were 
in  circulation  in  the  islands,  would  be  redeemed  at  something  of  a 
loss,  but  it  was  very  desirable  that  the  copper  money  be  taken  out  of 
circulation  and  the  new  copper  be  introduced.  For  this  reason  it 
seemed  best  for  the  Government  to  stand  a  slight  loss,  if  necessary, 
in  order  to  get  rid  of  these  coins  which  could  not  be  exported  in  most 
cases  by  private  individuals  without  a  loss. 

,  It  was  thought  that  it  would  be  wise,  therefore,  for  the  insular 
treasurer  to  place  redemption  agents  in  the  principal  market  in 
^Manila  and  in  the  other  leading  markets  throughout  the  provinces  to 
make  these  exchanges,  the  suggestion  being  that  the  attempt  be  made 
first  in  a  small  way  in  Manila  and  that  the  service  then  be  extended 
elsewhere  if  it  should  prove  advisable. 

1  '^,  '<'-^  \  i 


'38        GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

The  exchange  for  the  minor  silver  coins  shonkl  be  made  at  the  estab- 
lished Government  rates,  but  the  people  should  be  allowed  to  exchange 
their  copper  coins  in  sums  certainly  as  small  as  50  centavos.  MTiere  it 
would  not  be  possible  to  make  the  rates  for  the  copper  coins  exactly 
the  same  as  those  for  the  larger  ones,  because  it  was  customary  for 
four  copper  coins  to  pass  as  equal  to  5  centavos,  it  seemed  that  the 
fractional  benefit  should  be  given  to  the  people.  The  rates  of  ex- 
change should  be  posted  and  agents  who  could  speak  the  language 
should  be  employed  to  make  the  exchanges. 

2.  If  the  i^rice  of  Mexican  currency  were  to  fall  so  low  that  it 
could  be  profitably  purchased  as  bullion,  it  was  recommended  that 
the  Government  purchase  it  promptly.  The  same  principle  should 
also  hold  with  reference  to  the  small  Chinese  and  other  silver  coins. 

3.  Under  the  gold-standard  act  it  was  provided  that  the  Govern- 
ment charge  for  exchange  sold  on  New^  York  by  the  Government  in 
Manila  be  three- fourths  of  1  per  cent  for  sight  drafts,  and  1^  per  cent 
for  telegraphic  transfers,  the  same  rates  to  be  charged  for  drafts  sold 
in  New  York  on  the  treasury  in  Manila.  The  power  was,  however, 
granted  to  the  secretary  of  finance  and  justice  to  change  these  rates 
temporarily  Ijy  special  order. 

Experience  seemed  to  have  shown  that,  owing  to  the  nature  of  the 
business  between  the  Philippine  Islands  and  other  countries,  espe- 
cially that  Avith  the  United  States,  it  would  not  infrequently  happen 
that  drafts  on  New  York  would  be  sold  in  Manila  at  the  Government 
rates.  The  chief  purchasers  were  the  banks,  who  bought  drafts  in 
large  sums  and  then  sold  smaller  drafts  at  slightly  higher  rates  to 
their  customers.  Of  course  the  larger  importers  bought  from  the  Gov- 
ernment directly.  No  drafts,  however,  were  sold  by  the  Government 
agent  in  New  York  on  the  treasury  in  Manila,  and  as  time  w^ent  on  it 
became  evident  that  from  the  nature  of  the  ordinary  business  and 
trade  such  bills  would  not  be  sold  so  long  as  the  rates  remained  as 
fixed  in  the  law.  It  was  considered  extremely  important  that,  since 
comparatively  large  sums  were  drawn  from  the  gold  fund  in  New 
York  by  drafts  sold  against  it  in  Manila,  this  fund  should  be  replen- 
ished usually  by  drafts  on  Manila  paid  for  in  gold  in  New  York.  It 
w^as  suggested,  therefore,  that  from  conditions  as  they  apjDeared  at 
that  time,  a  change  in  the  rate  of  drafts  on  Manila  be  made.  The 
rate  of  one-half  ])er  cent  for  demand  drafts  and  three-fourths  per 
cent  for  telegraphic  transfers  seemed  to  the  commissioner  to  be  about 
right. 

4.  Inasmuch  as  it  probably  would  be  best  ultimately  to  rely  mostly 
upon  selling  exchange  for  the  maintenance  of  the  parity  of  the  new 
coins  and  for  the  regulation  of  the  quantity  of  the  currency  of  vari- 
ous kinds  in  the  islands,  it  would  probably  be  wise  if  some  of  the  gold 


GOLD    STANDARD    IN    INTER NATTOlsrAL    TRADE.  89 

ill  the  troasurv  in  Manila  were  sold  or  trans  for  red  to  tin-  United 
States,  \Yliere  it  would  draw  interest. 

5.  It  was  thought  also  that  later,  although  not  immediately,  it 
would  i)rol)al)ly  be  found  wise  to  stop  the  j^ractice  of  redeeniino-  the 
Philippines  eurreiiey  in  United  States  curreiic>'  as  provided  in  para- 
graph 3  of  section  5  of  the  gold-standard  act. 

(').  It  was  also  advised,  in  conjunction  with  Mr.  Kemmerer,  the  chief 
of  the  division  of  the  currenc}',  that  the  Government  deposits  in  the 
banks  be  determined  upon  and  maintained  solely  in  the  interests  of 
the  gold-standard  fund  and  the  convenience  of  the  Government  in 
putting  nione^y  into  circulation  without  attempting  in  any  way  to 
relieve  monetary  stringency  or  other  commercial  trouble  by  increasing 
or  withdrawing  de])osits  from  the  banks.  It  seemed  the  best  jjolicy  to 
interfere  as  little  as  possible  Avith  the  normal  movements  of  business 
and  so  to  arrange  the  Government  control,  whenever  any  control  is 
necessary,  as  to  permit  the  monetary  system  to  work  as  nearly  as  pos- 
sible automaticalh'.  If  the  Government  were  to  state  fully  and  com- 
pletely its  method  in  the  la^v  and  then  would  not  change  its  policy,  it 
was  felt  that  the  new  system  would  w^ork  substantially  as  would  a 
regular  gold-standard  system. 

7.  The  system  of  bank-note  issue  in  the  Philippines  is  not  complete 
at  the  present  time,  only  one  bank  issuing  notes,  and  that  under  the 
Spanish  charter.  There  seems  to  be  some  legal  question  as  to  whether 
the  Spanish  bank  has  not,  under  the  law,  a  monopoly,  so  that  no  more 
comjDlete  sj^stem  can  ))e  organized  without  its  consent.  It  seemed, 
however,  desirable  that  at  the  proper  time  the  matter  be  taken  uj), 
and  that,  if  possible,  some  arrangement  be  made  by  which  a  more 
satisfactoiy  bank-note  system  could  be  established. 

Soon  after  the  passage  of  the  act  taxing  the  local  coins,  and  after 
the  proclamations  had  been  issued  explaining  the  new  monetary  sys- 
tem, the  treasury  department  established  in  the  principal  market  in 
Manila  a  stall  for  the  exchange  of  the  old  copper  coins  for  the  new. 
It  had  been  found  that  there  was  a  very  small  demand  for  the  new 
copper  coins.  The  experience  of  the  first  few  days,  when  an  effort 
was  made  to  persuade  the  market  women  and  the  customers  to  ex- 
change the  old  money  for  the  new,  showed  that  at  the  regular  rates 
established  for  silver  it  was  unprofitable  for  the  people  to  make  the 
exchange  and  that  comparatively  few  cared  to  get  the  new  coins.  This 
was  the  experience  from  tjiat  time  until  the  tax  went  into  effect,  so  far 
as  the  removal  of  the  old  copper  coins  is  concerned. 

On  the  other  hand,  there  has  been  little  hesitation  about  accepting 
the  new  copper  coins.  There  has  been  a  great  scarcity  for  some  years 
of  small  change  in  both  Manila  and  the  provinces,  and  the  new  coins 
were  heartily  welcomed.     In  a  good  many  cases,  owing  in  part  to  con- 


'  / 


40  GOLD   STANDARD   IN    INTERNATIONAL    TRaDK. 

fusion  on  the  jDart  of  the  people,  the  new  coins  beciinie  a  source  of 
specuhition  in  the  provinces.  As  has  been  stated  before,  4  of  the  old 
coins  passed  for  5  cents  Mexican.  The  new  copper  coins,  of  course, 
could  be  obtained  100  for  a  peso.  If  they  could  be  passed  off  as  the 
old  coins  were,  80  for  a  peso,  there  was  a  large  margin  of  i3rofit.  It 
was  found  that  in  many  cases  people  with  considerable  means,  and 
even,  in  some  instances.  Government  officials  in  the  provinces,  were 
making  an  effort  to  secure  control  of  rather  large  quantities  of  these 
new  copper  coins,  either  by  asking  that  their  entire  salary  for  the 
month  be  paid  in  the  coins  or  by  bringing  silver  to  the  provincial  or 
municipal  treasurer  and  exchanging  it  for  these  coins.  These,  then, 
were  bought  100  for  the  peso,  and  were  paid  out  in  many  cases  at  the 
rate  of  80  to  a  peso.  Comparatively  soon,  however,  it  became  generally 
known  that  the  Government  stood  ready  to  furnish  the  copper  cen- 
tavos  in  any  quantity  at  the  rate  of  100  to  the  new  Philippine  peso, 
and  this  speculation  has  apparently  largely  stopped. 

Under  date  of  November  3,  1904,  the  secretary  of  finance  and  justice 
issued  the  following  order  regarding  the  rates  at  which  bills  of  ex- 
change should  be  sold  in  New"  York  against  the  gold  fund  in  Manila. 
The  order  came  as  a  cablegram,  in  the  following  form : 

Advise  depositors  in  tlie  United  States  of  gold-standai-d  fund  to  sell  demand 
drafts  on  the  Pliilij)i)ine  treasury  at  three-eighths  of  1  per  cent  and  telegraphic 
transfers  at  three  fourths  of  1  per  cent  in  sums  not  less  than  $5,000.  Rate 
temporarily  fixed  hy  Secretary  of  Finance  and  Justice  in  accordance  with  sub- 
section 1  of  section  7,  Act  938. 

This  action  of  the  Philippine  government  seems  to  be  such  that 
the  gold-standard  fund,  under  these  rates,  Avill  probably  become  auto- 
matically self-sustaining.  In  case  it  should  be  found  that  the  de- 
mands continue  practically  permanently  too  strong  on  either  side, 
of  course  the  rate  can  be  readjusted  by  a  new  executive  order.  It, 
however,  is  extremely  desirable  that  as  soon  as  possible  the  rate  be 
found  whicli  will  best  sustain  the  gold-standard  fund  and  likewise 
best  meet  the  needs  of  business.  Then  no  further  change  should  be 
made,  in  order  that  business  men  may  count  absolutely  upon  the  rate 
remaining  unchanged.  In  all  probability  that  rate  has  already  been 
found. 

It  will  be  noted  from  what  has  been  said  above  that  the  Philippine 
currency  question  may  be  considered  substantially  as  settled.  In  the 
last  report  of  the  chief  of  the  Bureau  of  Insular  Affairs  in  the  War 
Department  iti  this  connection  the  following  statement  is  made :  " 

Tiie  Philippine  currency  act  was  passed  by  Congress  April  3.  1903.  The  first 
new  Philippine  peso  was  placed  in  circulation  .luly  23,  1903. 

Since  that  time  the  Government  has  eliminated  30  or  40  millions  of  debased 


"The  report  on  this  sul).i(>cj   is  printed  in  full  in  .Vjiin'Mdix  15,  2. 


GOLD    ^^TANDARl)    IN"    TNTKRN ATTON AL    TRADK.  41 

ciiriMMU-y  iuid  has  substituted  lor  it  a  curreiicy  based  uijou  tlie  j;old  staudard 
without  serious  jar  or  dislocation — all  aeeoiui»lished  within  seventeen  months. 
In  the  minds  of  tinaneiers  and  bankers  this  aecomplishment  is  considered  a 
wonderful  achievement,  uai.in*'  in  the  history  of  the  world. 

This  is  certainly  a  roinarkable  sliowiiiff,  and  one  that  may  properly 
afford  to  the  Philippine  g-ovennnciit  and  to  those  interested  in  its 
success  o-reat  satisfaction. 

CHINA. 

The  general  plan  of  work  followed  b}^  the  American  commissioner 
in  China  has  already  been  outlined  in  the  general  report  of  the  com- 
mission, beginning  with  page  1-1.  The  pamphlet  which  was  prepared 
for  distribution  in  China  to  form  the  basis  of  discussions  with 
Chinese  officials  is  printed  in  full  as  Appendix  A  1.  The  pamphlet 
apparenth'-  awakened  considerable  interest.  The  Government  had 
already  committed  itself  to  a  revision  of  its  monetary  system,  and 
there  had  been  many  publications  from  various  bankers  and  business 
men  in  China  advising  the  Government  regarding  the  best  methods 
of  carrying  out  the  reform.  Moreover,  inasmuch  as  the  Chinese  Gov- 
ernment had  invited  the  assistance  of  the  Government  of  the  United 
States,  the  pamphlet  assumed  somewhat  more  of  an  official  character 
than  had  been  the  case  with  those  which  preceded  it,  and  the  highest 
officials,  knowing  that  they  would  probably  ultimately  be  called  upon 
to  express  to  the  Government  some  opinion  regarding  the  merits  of 
the  plan,  felt  compelled  to  look  somewhat  carefully  into  the  subject, 
and  the  pamphlet  was  eagerly  read.  Some  of  the  Chinese  papers 
printed  it  in  full  in  installments. 

The  general  nature  of  the  work  of  the  commissioner  having  already 
been  outlined,  it  remains  here  only  to  enter  somewhat  more  into  detail 
in  an  explanation  of  the  present  monetary  and  business  conditions 
in  China,  as  well  as  of  the  attitude  of  the  different  classes  in  the  com- 
munity— government  officials,  business  men,  etc. — toward  this  reform, 
with  a  more  detailed  statement  of  the  reception  of  tlie  proposals  made. 

1.  MONETARY  AND  BUSINESS  CONDITIONS. 
TRADE  WITH  FOREIGNERS. 

The  conditions  under  which  trade  with  foreigners  is  carried  on  in 
China  are  so  different  from  those  which  obtain  in  the  internal  trade 
that  it  is  best  to  consider  those  conditions  under  separate  heads.  The 
import  and  export  business  is  practically  all  in  the  hands  of  a  com- 
paratively few  foreign  firms.  These  firms,  through  theii"  native 
Chinese  compradores  or  managers,  make  their  purchases  from  the 


4^   .  GOLD    STANDARD    IN    INTERNATIONAL   TRADE. 

native  shippers  and  producers  in  the  interior,  and  in  the  same  way 
through  these  native  de4ilers  sell  to  the  Chinese  consumers  the  goods 
Avhich  they  import.  The  foreigners  uhemselYes  in  many  cases  have 
practically  nothing  to  do  with  the  actual  transaction  of  business 
with  the  natives  themselves.  They  look  after  the  selling  of  the 
goods  which  they  are  exporting  to  foreign  countries.  They  see  to 
the  purchase  in  foreign  countries  of  the  goods  which  they  are  im- 
porting. They  do  the  banking  business  both  ways  with  the  foreign 
countries ;  their  real  dealings  in  China  itself  are  practically  intrusted 
entirely'  to  their  native  manager,  the  compradore. 

In  their  dealings  with  foreign  countries  they  generally  use  as  a 
monetary  basis  the  pound  sterling.  Of  course,  if  they^  are  dealing 
with  the  United  States  or  Japan  or  France,  they  may  use  the  dollar 
or  the  yen  or  the  franc.  Even  then,  however,  in  many  cases  the  ex- 
changes are  made  on  the  sterling  basis  and  the  matter  of  settlement 
is  simply  another  step  beyond  the  exchange  from  the  native  monetary 
unit  into  pounds  sterling  or  visa  versa. 

In  their  dealings  with  the  natives,  through  their  compradores,  they 
must,  of  necessity,  use  the  native  unit,  which  is,  generally  speaking, 
the  tael.  The  tael,  however,  as  is  well  known,  is  no  invariable  unit  in 
general  use  throughout  China.  The  largest  business  houses  are  at 
Shanghai.  There,  of  course,  the  so-called  Shanghai  tael  is  the  unit. 
If  the  person  is  doing  business  in  Canton,  he  will  find  the  Canton  tael 
as  its  unit.  In  Tientsin,  that  city  has  its  separate  tael.  In  Peking, 
two  are  in  common  use — the  Kungfa  tael  for  ordinary  commercial 
dealings;  the  K'up'ing  tael  for  dealings  with  the  Government,  pay- 
ment of  taxes,  etc. 

Moreover,  the  importer  or  exporter  in  paying  his  dues  to  the  Im- 
perial Customs  Service  makes  use  of  the  Ilaikwan  tael,  which  is  some- 
what heavier  still  than  any  of  the  others  mentioned. 

The  foreign  business  man  in  Shanghai,  for  exam])le,  becomes  thus 
familiar  with  the  Shanghai  tael  and  more  or  less  with  the  Haikwan 
tael.  He  learns  to  know  thoroughly  well  the  ratios  which  these  bear, 
each  to  the  other  (100  Haikwan  taels=11.4  Shanghai  taels).  He  is 
fully  familiar  with  the  tael  fluctuations  in  the  value  of  the  Shanghai 
tael  as  compared  with  the  pound  sterling,  inasmuch  as  the  tael  is  a 
mere  weight  of  silver  and  in  consequence  its  value  fluctuates  from  day 
to  day  with  the  market  price  of  silver  bullion.  His  compradore,  how- 
ever, or  his  other  agents  who  have  dealings  with  the  natives  in  the 
interior  have  a  much  more  bewildering  variety  of  moneys  to  deal  with. 
In  practically  every  different  city  of  consequence,  as  they  go  into  the 
interior  selling  their  goods  or  making  purchases,  a  new  tael  will  be 
found,  having  a  new  ratio  of  exchange  with  the  Shanghai  tael,  and  in 
every  case  the  reckoning  must  be  made  from  one  money  into  the  other. 
Mr.  Morse,  in  an  article  in  the  Journal  of  the  China  Branch  of  the 


GOLD   STANDARD    IN    INTERNATIONAL   TRADE.  48 

Royal  Asiatic,  enunierates  78  dillV'roiit  taels,  with  their  relative 
weights  and  values.     (See  Appendix  xV,  IV,  2. 

In  Shanghai  itself,  for  ordinary  business  dealings  among  foi- 
eigners  as  well  as  among  the  natives  in  their  local  transactions  there, 
the  Mexican  dollar  is  the  common  unit  of  payment.  The  merchant 
must,  therefore,  be  familiar,  not  merely  with  the  ratio  of  the  pound 
sterling  and  the  tael,  but  also  with  the  ratio  of  the'tael  and  the  Mexi- 
can dollar.  His  goods  have  been  paid  for  in  pounds  sterling.  They 
will  be  sold  for  Mexican  dollars.  The  Mexican  dollar  being  itself  a 
coin  with  no  legal  tender  qualities  has  its  value  dependent  mainly 
upon  its  value  as  bullion.  Inasmuch,  however,  as  in  some  parts  of 
China  the  Mexican  dollar  is  the  generally  accepted  monetary  unit, 
and,  as  such,  the  most  convenient  money  there  for  trade  purposes,  it 
has  a  special  use  of  its  own,  and  its  value  varies  often  by  several 
hundredths  from  the  bullion  value  which  forms  the  chief  basis  for  its 
exchange  value. 

If  the  merchant  is  one  of  importance,  whose  business  extends  pretty 
generally  into  the  different  parts  of  China,  his  business  methods 
become  still  far  more  complicated  than  is  implied  in  the  foregoing. 
In  Shanghai  the  chief  monetary  unit  in  retail  trade  is,  as  has  been 
said,  the  Mexican  dollar.  If  one  goes  up  the  Yangtze  River  for  a  day 
or  so,  he  will  find  places  where  the  unit  of  most  general  acceptability 
in  the  towns  is  the  Carolus  dollar,  an  old  Spanish  dollar  which  was 
introduced  into  the  country  many  years  ago  and  which  has  retained 
its  reputation  in  certain  localities  to  a  surprising  extent,  inasmuch  as 
its  value  is  generally  maintained  at  a  rate  considerably  above  its 
bullion  value.  In  certain  localities  the  reputation  of  the  Carolus 
dollar  has  been  so  astonishingly  satisfactory  that,  at  the  present  time, 
even  well-made  counterfeits,  which  are  known  to  be  comiterfeits,  have 
a  regular  fixed  value  and  circulate  readily.  For  example,  one  witness 
states  that,  in  a  town  where  he  lived  a  Carolus  dollar  of  the  standard 
type  passed  for  100  units.  One  counterfeit  of  the  same  dollar,  which 
was  well  known  and  comparatively  easily  recognized,  passed  for  some- 
thing like  92  per  cent  of  the  original,  while  a  second  counterfeit,  also 
well  known  and  easil}'^  recognized,  passed  for  only  some  83  per  cent  of 
the  original. 

On  ascending  the  river  as  far  as  Hankow  the  province  of  Hupeh  is 
reached,  which  has  a  separate  coinage  of  its  own,  and  the  Hupeh  dol- 
lars are  practically  the  only  ones  seen  in  common  circulation  and  the 
only  ones  which  are  readily  accepted.  The  Hupeh  mint  has  possibly 
the  best  reputation  of  any  of  the  independent  mints  of  China;  the 
coins  are  well  made  and  their  reputation  seems  rapidly  extending. 
The  Peking-Hankow  railroad  on  its  southern  end  has  been  making 
use  of  these  Hupeh  dollars.  The  contractors  building  the  line,  in 
order  to  save  themselves  the  troul)le  of  carrying  tons  of  "  cash,"  have 


44        GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

used  the  dollars,  or  dollar  notes,  in  paying  off  their  laborers;  the  rail- 
road itself  will  take  in  payment  for  railway  fares  nothing  but  these 
dollars  or  the  Hupeh  provincial  notes  issued  in  terms  of  these  dollars, 
so  that,  on  the  whole,  their  range  of  validity  in  nse  is  rapidly  extend- 
ing, and  has  now  even  gone  considerably  beyond  the  bounds  of  the 
province  itself.  I  have  already  indicated  the  fact  that  the  Hupeh 
government  has  is'sued  government  notes  based  on  these  dollars,  and 
these  notes  on  account  of  their  greater  convenience  are  becoming  pop- 
ular. There  has  been  no  hesitation  whatever  as  yet  on  the  part  of  the 
government  in  redeeming  them  on  demand,  and  they  jDass  at  par  with- 
out the  slightest  difficulty. 

If,  instead  of  going  toward  Hankow,  one  were  to  go  from  Shanghai 
to  Canton,  a  separate  dollar — the  Canton  dollar — would  be  found.  If 
the  traveler  were  to  go  north  to  Tientsin  he  would  find  in  common  use 
the  Peiyang  dollar  coin  in  Tientsin,  or,  perhaps  equalh^  common,  the 
British  dollar  coined  at  Hongkong.  In  Peking  the  British  dollar  is 
preferred  to  the  Peiyang  dollar,  even  though  the  latter  is  coined  in  the 
same  province  and  the  former  is  a  foreign  coin.  The  natives  have 
discovered  that  the  British  dollar  is  likely  to  be  of  a  rather  better 
quality  of  silver,  and  in  consequence  it  is  preferred  for  purposes  of 
melting.  It  is  not  unusual,  when  making  a  small  purchase  and  hag- 
gling over  the  price,  to  have  the  local  dealer  finally  accept  an  offer  on 
condition  that  he  be  paid  in  the  "  man  "  dollar  instead  of  the  Peiyang, 
the  British  dollar  being  generally  called  among  the  natives  the  "man" 
dollar  on  account  of  its  having  the  device  on  the  dollar  of  a  figure  of 
a  human  being.  Sometimes  even,  in  these  localities,  one  finds  the 
Kirin  dollar  from  Manchuria,  although  on  account  of  the  poor  quality 
of  the  silver  which  it  sometimes  contains  it  is  not  generally  acceptable. 

Besides  the  dollars  already  mentioned,  which  are  found  in  the  larger 
places  and  which  are  not  exactly  interchangeable  one  for  the  other  in 
large  quantities  in  any  place,  some  being  always  rather  niore  in  de- 
mand than  others  and  in  consequence  at  a  slight  premium,  there  are 
other  dollars  found  in  Nanking,  Fuchow,  and  elsewhere. 

It  should  be  kept  in  mind  also  that,  although  practically  all  of  these 
native  dollars  are  supposed  to  represent  seventy-two  one-hundredths 
of  the  K'up'ing  tael,  while  the  British  dollar  is  very  nearly  the  same  in 
weight — 416  grains — no  one  of  the  mints  has  a  reputation  absolutely 
above  suspicion.  As  has  been  intimated,  the  Kirin  dollar  from  Man- 
churia is  generally  unacceptable  in  other  provinces  further  south,  but 
the  Peiyang  dollar  and  the  Canton  dollar  are  also,  it  is  generally 
known,  at  times  light  in  weight  or  deficient  in  quality,  and  even  the 
Hupeh  dollar,  which  is  probably  best  in  reputation  of  them  all,  is  not 
entirely  above  suspicion  and  is  occasionaly  discounted. 

The  difficulties  of  the  dealings  of  the  foreign  merchant  would,  how- 
ever, only  be  well  begun  with  what  has  been  said  above  if  he  were  to 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.         45 

attempt  to  extend  his  trade  liimsell"  into  tlie  interior  away  from  tiie 
treaty  ports  and  the  best  known  lines  of  travel  where  the  best  known 
dolhirs  and  taels  are  in  connnon  use.  The  difficulties  of  the  internal 
trade  along  similar  lines  Avill  be  sjioken  of  somewhat  later.  It  is  bet- 
ter, while  we  are  dealing  with  the  import  and  export  trade,  to  c(mfinc 
ourselves  sonieAvhat  more  closely  to  the  special  difficulties  along  that 
line  of  business. 

Although  the  great  variety  of  moneys  in  use  makes  lousiness  difficult, 
the  greatest  risk  and  difficulty  in  connection  Avith  the  monetary  sys- 
tem comes  from  the  fact  that  all  of  these  moneys  in  China  are  on  a 
silver  basis,  while  the  importer  or  exporter  in  most  cases  must  settle 
his  home  trades  on  a  gold  basis.  He  may  make  a  purchase  in  London, 
for  example,  AA'lien  the  pound  sterling  would  be  worth,  say,  8  Shanghai 
taels,  and  may  even  have  arranged  to  sell  his  goods  on  that  basis  to  be 
paid  for  on  delivery.  By  the  time  the  goods  reach  Shanghai,  how^- 
ever,  a  fall  in  the  price  of  silver  may  well  have  made  8  taels  Avorth  no 
more  in  terms  of  gold  than  6^  or  7  Avould  have  been  at  the  time  the 
purchase  was  made,  and  his  prospective  profits  may  thus  have  been 
turned  into  a  loss. 

This  continual  fluctuation  in  the  value  of  the  tael  as  compared  with 
the  pound  sterling  has  made  the  import  and  export  trade  partake  so 
much  of  the  nature  of  gambling  that,  although  some  fortunes  have 
been  made,  others  have  been  lost  through  no  fault  of  the  merchants 
concerned  or  with  nothing  to  their  credit.  Such  a  state  of  affairs 
practically  forces  the  most  conservative  business  man  into  paying 
undue  attention  to  the  conditions  of  the  money  market  at  the  expense 
of  the  care  wdiich  he  should  give  to  his  mercantile  business  proper. 
Fortunes  are  so  easily  made  or  lost  through  the  fluctuations  in  ex- 
change that  many  merchants  have  not  the  stability  of  character  to 
enable  them  to  give  a  sufficient  amount  of  care  to  studying  the  wants 
of  the  native  Chinese  customers  and  attempting  to  su^^ply  these  w^ants 
through  legitimate  trade  measures.  Of  course,  many  of  the  risks 
on  specific  purchases  are  avoided  by  arranging  with  the  banks  for 
forAvard  rates  of  exchange.  This,  lioAveA^er,  is  ahvays  expensive  and 
unsatisfactor}'  and  does  not  remove,  though  it  shifts  somewhat,  the 
speculatiA'e  element.  There  can  ncA^r  be  a  sound  importing  or  ex- 
j^orting  business  carried  on  until  China  is  given  a  monetary  system, 
the  unit  of  Avliich  shall  be  substantially  stable  in  comparison  with 
those  of  the  gold-standard  countries. 

THE   LIKIN. 

Aside,  hoAveA'er,  from  this  question  of  the  monetary  difficulties, 
others,  which  are  only  indirectly  connected  Avith  the  monetary  system, 
hamper  the  import  and  export  trade.  The  most  important  of  these 
other  hindrances  is  found  in  the  likin  duties,  Avhich  are  levied  in 


46        GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

many  places  in  China.  These  duties  are  practically  internal  transit 
duties,  which  are  collected  on  goods  in  transit,  passing  various  likin 
stations,  established  ordinarily  by  the  provincial  authorities.  A 
smaller  tax  is  the  octroi,  levied  by  various  cities  at  the  city  gates, 
especially,  of  course,  on  country  produce  brought  into  the  city  for 
sale.  Under  various  treaties  with  foreign  powers  attempts  have  been 
made  to  a'bolish  these  likin  duties  and  to  substitute  in  their  stead  a 
certain  fixed  charge,  which  shall  be  added  to  the  customs  duties  when 
goods  are  imported.  In  many  cases  this  result  has  been  attained,  and 
the  importer  whose  goods  are  destined  for  consumption  in  the  inte- 
rior may  pay  his  additional  customs  duty,  usually  2^  per  cent  in 
addition  to  the  5  per  cent  customs.  The  new  treaties  with  Great 
Britain,  the  United  States,  and  Japan  permit  a  surtax  of  one  and  one- 
half  the  customs  (i.  e.,  12^  per  cent  in  all)  on  imports  and  of  one-half 
the  export  duty  with  a  maximum  total  of  7^  per  cent.  A^H^ien  these 
taxes  are  paid,  the  dealer  may  receive  a  pass  which  entitles  his  goods 
to  transit  into  the  interior  or  to  the  coast  without  further  payment  to 
the  likin  officials. 

The  trade  is,  nevertheless,  in  many  cases  seriously  hampered.  The 
likin  officials  must  be  visited,  the  pass  presented,  and  its  validity 
passed  upon.  In  many  cases  the  officials,  in  order  to  make  some  per- 
sonal profit,  so  delay  the  transit  of  the  goods  in  the  examination  and 
the  demanding  of  passes  that  the  small  bribe  desired  is  frequently 
paid  in  order  to  save  time.  Moreover,  the  dispute  as  to  exactly  what 
is  intended  by  the  payment  of  these  transit  duties  is  not  yet  entirely 
settled.  The  foreigners,  who  are  naturally  anxious  to  have  their 
trade  burdened  as  little  as  possible,  insist  that  the  goods  are  to  be 
fr6e  from  duties  until  they  are  practically  in  the  hands  of  the  con- 
sumer. The  native  official,  on  the  other  hand,  claims  that  as  soon  as 
they  are  stopped  in  their  regular  transit  and  are  delivered  to  the 
consignee  at  the  interior  port,  the  validity  of  the  transit  pass  ends, 
and  the  goods  may  then  be  subjected  to  further  local  taxation  before 
they  are  finally  placed  in  the  hands  of  the  consumer. 

Much  has  l)een  done,  especially  under  the  late  treaties,  to  remove 
this  burden  of  the  likin,  but  it  is  not  felt  that  the  desired  end  has  yet 
been  reached.  The  Chinese  Government,  however,  apparently  has 
seen  the  desirability  of  meeting  fairly  these  demands  of  the  foreigners. 
Committees  have  already  been  at  work  to  see  if  it  were  possible  to 
provide  satisfactory  substitutes  in  the  form  of  taxes  of  another  kind 
to  take  the  place  of  the  revenue  which  will  be  lost  to  the  provincial 
officials  from  the  actual  abolition  of  the  likin  duties  unless  the  cen- 
tral Government  makes  compensation,  and  it  is  to  be  hoped  that  in 
the  not  distant  future  this  evil  will  be  removed. 

One  chief  trouble,  whicli  has  come  through  the  payment  of  these 
likin  duties  when  transit  is  not  provided  for  as  above,  is  that  they 


GOLD  8TANDAKD  IN  INTERNATIONAL  TRADE.         47 

are  naturally  made  payable  in  each  separate  province,  or  even  minor 
political  subdivision,  in  the  local  money.  If,  therefore,  the  shipper 
offers  to  pay  in  dollars  the  demand  will  probably  be  made  in  taels. 
If  he  is  familiar  with  the  Shanghai  tael  it  may  well  be  that  the 
demand  will  be  made  in  terms  of  a  local  tael,  and  whenever  the 
()p]3ortunity  offers  for  changing  from  one  system  of  taels  to  another 
the  advantage  is,  of  course,  always  taken  by  the  local  official  or  local 
money  changer  who  is  acting  with  the  official  in  making  the  exchange. 
These  customs  of  taking  advantage  of  the  exchange  are,  of  course, 
found  not  merely  among  the  officials  in  their  governmental  dealings, 
but  are  generally  found  elsewhere  as  well.  The  foreign  banks,  for 
exami)le,  Avhen  changing  pounds  sterling  into  dollars  for  European 
customers,  I'eckon  first  the  rates  of  exchange  into  taels  with,  of  course, 
the  usual  exchange  profit,  and  then  the  taels  into  dollars  with  a  sec- 
ond profit.  A  similar  mode  of  procedure  is,  of  course,  adopted  by 
every  person  who  has  it  in  his  power  to  perform  the  service  of  ex- 
changing money,  and  the  exchange  business,  while  profitable  in  itself, 
has  thus  become  an  extremely  troublesome  hindrance  to  mercantile 
business,  both  in  the  export  and  import  trade  and  in  the  more  strictly 
internal  trade. 

BANKS  AND  BANKING. 

The  banking  business  in  China  is  of  great  antiquity,  the  general 
principles  having  apparently  been  fairly  well  understood  and  the 
business  practiced  in  China  long  before  any  such  business  was  estab- 
lished in  Europe. 

So  far  as  the  foreigners  who  are  engaged  in  foreign  trade  are  con- 
cerned, their  business  is  done  mostly  through  foreign  banks,  of  which 
there  is  a  sufficient  number  with  suitable  branches  and  agencies  to 
supi^ly  reasonably  well  the  foreign  demand.  The  principal  foreign 
banks  are  the  Hongkong  and  Shanghai  Banking  Corporation,  the 
Chartered  Bank  of  India,  Australia,  and  China,  the  Yokohama  Specie 
Bank,  the  Russo-Chinese  Bank,  the  German-Asiatic  Bank,  and  the 
Bank  of  Indo-China.  These  banks  do  a  considerable  deposit  and  dis- 
count business,  but  the  chief  interest,  after  all,  is  in  their  exchange 
business.  There  is  a  tendency,  of  course,  as  local  business  develops 
and  foreign  business  houses  are  established  for  the  local  trade,  for  the 
discount  and  deposit  business  to  increase,  but  as  yet  the  exchange 
business  is  of  first  importance.  These  banks  are  also  active  in  finan- 
cing local  investments  made  by  foreigners,  some  of  them  in  arranging 
for  loans  to  the  Chinese  Government,  and  in  general  in  doing  finan- 
cial business  of  all  kinds  for  foreigners  in  their  business  in  China, 
whether  dealing  with  one  another  or  with  the  native  Chinese. 

These  banks  do  their  business  in  China  without  any  contract  with 
the  Chinese  Government,  and  with  no  charter  issued  by  that  Govern- 


48  C40LD    STANDARD    IN    INTERNATIONAL    TRADE. 

ment.  They  are  there  simply  on  tolerance,  with  the  protection  that 
comes  from  the  influence  of  their  respective  governments  and  with  the 
privileges  granted  to  foreign  property  holders  and  foreign  business 
men  in  the  international  settlements,  including,  of  course,  so  far  as 
the  right  is  extended  to  ordinary  business  men,  that  of  extraterri- 
toriality. 

It  is  to  be  noted  also  that  several  of  these  banks  issue  bank  notes 
under  the  authority  of  their  charters  from  home,  but  without  any 
charter  or  other  grant  of  the  privilege  from  the  Chinese  Government, 
either  central  or  provincial.  The  bank  notes  form  a  convenient 
medium  of  circulation  in  some  of  the  treaty  ports  and  w^ithin  narrow 
limits  outside  of  those  ports.  They  are  issued  ordinarily  in  terms  of 
dollars,  although  there  are  also  tael  bank  notes.  The  dollar  notes 
are  regularly  payable,  of  course,  in  the  dollar  common  in  the  city 
where  they  are  issued ;  for  example,  in  the  Mexican  dollar  in  Shang- 
hai, in  the  British  dollar  in  Canton  or  Peking,  where  that  dollar  is 
the  one  usual  in  circulation,  etc.  The  same  principle  would  hold  with 
reference  to  the  tael — those  issued  by  the  banks  in  Shanghai,  for 
example,  being  payable  in  the  Shanghai  tael.  It  is  worthy  of  remark 
(and  frequently  is  the  occasion  of  severe  remarks)  that  the  notes 
issued  by  a  foreign  bank  in  one  city  in  the  Chinese  Empire  are  not 
necessarily  acceptable  at  par  by  other  branches  of  the  same  bank  situ- 
ated in  different  cities.  A  Shanghai  bank  note,  for  example,  is  very 
generally  discounted  if  presented  to  the  Tientsin  or  Peking  or  Hong- 
Icong  branch  of  the  same  bank,  the  discount  sometimes  being  as  high 
as  5  per  cent.  A  Tientsin  note  is  sometimes  discounted  in  Peking  as 
much  as  1  per  cent,  although  the  two  cities  are  only  some  three  hours 
apart  by  railroad,  and  the  Peking  branch  issues  no  notes  of  its  own. 

The  discount  of  bank  notes  by  diiferent  branches  of  the  same  bank 
situated  in  different  cities  is  so  great  that  it  makes  a  very  appreciable 
source  of  loss  to  travelers  who  are  not  especially  careful  with  refer- 
ence to  the  kind  of  money  which  they  are  carrying,  and  this  discount 
places  of  course  a  decided  check  upon  many  kinds  of  local  traffic, 
although  it  forms  a  decided  source  of  profit  to  the  banks  themselves. 
When  the  Chinese  Government  establishes  an  imperial  bank  in  con- 
nection with  the  establishment  of  its  new  monetary  system,  one  of  the 
most  important  of  its  reforms  would  of  course  be  to  make  its  notes 
acceptable  at  any  of  its  branches  or  agencies  anywhere  within  the 
Empire. 

Inasmuch  as  the  number  of  banks  is  quite  limited,  and  since  in 
some  of  the  rather  important  ports  not  all  of  them  have  branches,  it 
enables  them  in  many  cases  to  work  harmoniously  enough  each  with 
llic  other  so  as  to  enable  them  to  secui-e  pretty  large  profits  from 
their  exchange  charges.  The  most  important  of  the  banks  have  made 
very  large  profits  since  theii-  establishment.     Some  of  the  newcomers 


(}OLD    STANDARD    IN"    INTERNATIONA  I.    TRADK.  49 

doubtless  have  not  beou  able  to  secure  so  high  profits.  The  banks  are, 
generally  speaking,  known  for  their  accuracy  and  carefulness  in  car- 
rying out  their  contracts  and  in  meeting  their  obligations.  But  they 
occupy  a  position  of  such  advantage  in  many  ways  that  it  seems  likely 
Ihat  their  high  protits  are  obtained  in  part  at  the  expense  of  the  devel- 
opment of  trade  in  other  directions  in  spite  of  the  fact  that,  one  may 
add  with  even  more  emphatic  truthfulness,  without  the  facilities 
which  they  have  oil'ered,  it  would  have  been  utterly  impossible  for 
trade  to  have  developed  anywhere  nearly  so  well  as  has  been  the  case. 

NATI\'E    BANKS." 

Native  banks  are  found  everywhere  in  China,  and  are  perhaps  to 
be  designated  as  exchange  banks,  loan  banks,  and  cash  shops,  although 
the  distinction  is  in  part  simply  the  ditferent  types  of  business  done. 

As  in  the  case  of  foreign  banks,  so  also  regarding  the  native  banks, 
the  Chinese  Government  has  no  general  law  prescribing  conditions 
for  tlieir  incorporation  or  method  of  organization.  If  a  group  of 
men  wish  to  organize  a  bank,  they  do  so,  choosing  their  place,  the 
amount  of  capital,  their  method  of  doing  business,  etc. 

Tlu>ir  detailed  methods  of  doing  business  are  not  well  known  among 
foreigners,  but  there  can  be  no  doubt  regarding  their  efficiency.  In 
most  of  the  large  cities  there  exist  bankers'  guilds,  to  which  belong 
the  local  loan  banks,  as  well  as  those  engaged  in  the  business  of  trans- 
ferring money  from  one  part  of  the  country  to  another,  and  these 
guilds  have  brought  the  banking  business  to  a  high  degree  of 
efficiency. 

The  most  famous  bankers'  organization,  especially  that  w^hich  has 
to  do  with  the  transferring  of  money  and  credit  particularly  in  the 
north  of  China,  is  the  Shan-si  Bankers'  Guild.  It  is  well  known  that 
in  China  it  is  the  custom  not  merely  among  bankers,  but  in  general 
among  artisans  and  business  men  of  all  kinds,  for  children  to  follow 
the  occupations  of  the  parents.  lii  consequence,  the  leading  bankers 
may  be  said  to  have  inherited  their  capacity  for  the  banking  busi- 
ness, and,  of  course,  they  have  been  thoroughly  trained  in  that  busi- 
ness. As  the  Shan-si  bankers  have  been  so  successful  for  many 
generations,  they  enjoy  great  prestige.  It  is  commonly  believed 
that  if  they  will  themselves  take  up  heartily  the  question  of  mone- 
tary reform  on  any  good  plan,  their  influence  alone  will  go  very  far 
toward  making  it  a  success.  If  they  oppose  any  system,  it  will  be 
extremely  difficult  to  make  it  successful.     The  following  quotation 

o  This  account  of  native  banks  is  to  a  considerable  extent  talcen  from  "  Chi- 
nese Business  Methods  and  I'oliey,"  by  T.  R.  .Ternigan,  former  American 
consul-general  at  Shanghai.  Some  of  the  information  has  been  taken  from 
other  books,  some  derived  from  personal  conversation  with  Chinese  bankers, 

S.  Doc.  128,  58-3 4 


50        GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

from  Jeriugan"'s  book  «  gives  a  brief  account  of  the  method  of  organi- 
zation and  management :  "  The  bankers  themselves,  being  Shan-si 
men,  always  aim  to  employ  only  natives  of  the  province  of  Shan-si, 
and,  when  possible,  select  men  of  their  own  village.  When  a  man  is 
appointed  to  a  post  at  one  of  the  branch  offices,  his-  family  is  taken  in 
charge  by  the  bank  and  held  as  security  for  his  fidelity  and  good 
behavior.  But  it  is  understood  that  the  family  is  not  actually  held 
in  prison,  though  kept  under  the  strictest  surveillance. 

While  at  his  post  the  employee  is  not  permitted  to  write  to  any 
member  of  his  family  under  seal,  but  all  such  letters  must  be  open 
and  sent  through  his  employer.  No  salary  is  paid,  but  all  necessary 
expenses  incurred  on  his  behalf  are  actually  kept  and  discharged  by  the 
bank.  The  term  of  the  appointment  is  for  three  years,  and  after  the 
expiration  of  that  time  the  employee  goes  to  his  employer's  house, 
taking  with  him  an  account  of  the  money  expended  during  the  term, 
when  he  is  closely  searched,  even  to  his  clothing.  After  a  full 
examination  has  been  made,  and  the  accounts  found  satisfactory,  and 
the  affairs  of  the  bank  have  been  prosperous  during  the  three  years, 
the  reward  is  made  remunerative,  and  the  employee  joins  his  family, 
who  then  no  longer  remain  under  surveillance.  But  in  the  event  that 
the  investigation,  both  of  the  accounts  and  the  condition  of  the  bank, 
prove  unsatisfactory,  the  effects  of  the  employee  are  seized  and  his 
family  continue,  as  it  were,  in  bondage,  until  a  suitable  fine  is  paid, 
or  the  employee  may  be  imprisoned. 

It  is  the  means  thus  employed  l\y  the  Shan-si  bankers  to  secure 
their  banks  against  losses  by  defalcations  or  otherwise  that  have 
intrenched  them  in  public  confidence,  and  they  are  often  used  by  the 
central  Government  as  the  medium  for  the  transmission  of  revenue 
from  the  provinces;  and  their  customers  may  be  found  among  offi- 
cials of  the  highest  rank. 

As  an  additional  i:)rotection,  the  head  managers  of  the  banks  asso- 
ciate together  in  a  guild,  and,  when  the  occasion  demands,  they 
formulate  a  line  of  policy  to  meet  the  particular  emergency.  The 
rules  to  govern  in  tlie  general  banking  business  relate  to  the  subjects 
which  enter  into  the  daily  operations,  such  as  the  rate  of  exchange, 
as  regulated  by  the  tables  posted  on  the  boards  of  the  bank  guilds, 
and  the  bank  violating  any  of  the  rules  is  fined  a  certain  sum.  There 
is  also  a  rule  that  the  books  of  a  bank  shall  be  carefully  examined, 
and  that  the  discovery  of  any  underhand  dealing,  or  any  attempt 
to  conceal  a  transaction,  is  punished  with  suspension. 

Each  bank  issues  its  own  bills,  Avhich  are  made  payable  to  bearer, 
and  customarily  on  demand,  but  sometimes  are  payable  so  many  days 
after  being  issued.    When  a  bill  is  presented,  the  holder  has  not  (he 


«  Pago  9o  ot  soq. 


GOLD    STANDAKD    IN    INTERN yVTIONAL    TRADE.  51 

oiDtion  to  say  what  shall  be  given  him  as  the  equivalent,  though 
his  preference  is  generally  respected;  the  bank  can  pay  the  bill  in 
either  cash,  the  current  bills  of  another  bank,  or  in  silver  or  gold, 
according  to  the  current  of  exchange/' 

As  is  customary  in  other  matters  concerning  the  welfare  of  the  com- 
mon people,  banks  are  also  likely  to  feel  the  displeasure  of  the  people 
if  they  fail  to  meet  their  obligations.  In  some  localities  the  holder 
of  a  bill,  on  which  payment  is  refused  by  the  bank,  is  permitted  to 
take  anything  about  the  bank  which  he  sees  which  is  substantially 
equal  in  value  to  the  bill  itself,  and  if  he  does  so,  the  act  is  not  con- 
sidered theft  and  he  is  not  liable  to  punishment.  Doubtless  this 
j)rivilege  is  at  times  abused,  and  the  unpopular  bank  is  practically 
plundered  by  hostile  bill  holders  and  the  rabble. 

Sometimes,  too,  when  a  bank  is  in  a  precarious  condition,  but  still 
knows  that  it  would  be  able  to  meet  its  obligations  if  a  run  were  pre- 
vented, the  services  of  a  local  official  are  requested  in  order  to  prevent 
a  run  upon  the  bank,  and  the  bank  itself  is  permitted  to  state  that 
it  will  pay  later  all  its  obligations.  It  is  comparatively  rare,  how^- 
ever,  that  banks  of  any  particular  importance  fail.  The  genius  of 
the  Chinese  for  organization  and  nnitual  responsibility  is  such  that 
the  bankers'  guilds,  knowing  substantially  accurately  the  condition 
of  each  member,  assist  the  weaker  ones  to  tide  over  a  period  of  depres- 
sion and  thus  prevent  the  evils  wdiich  come  from  bank  failures.  The 
Chinese  have  also  clearing  houses,  which  enable  them  still  better  to 
keep  track  of  the  credit  of  each  individual  bank  and  to  prevent 
employment  of  irregular  methods. 

Though  the  Government  does  not  require  that  those  about  to 
engage  in  the  banking  business  obtain  permission,  and  although  no 
general  law  exists,  the  Government  is  nevertheless  often  very  severe 
in  case  banks  fail.  In  such  events  the  Government  maj^  make  the 
most  careful  investigations,  and  if  the  managers  are  at  fault  they  are 
likely  to  meet  with  very  severe  punishment.  Decapitation  of  the 
principal  offenders  is  by  no  means  unknown,  provided  it  is  found 
that  the  failure  has  occurred  through  their  dishonesty,  or  even 
through  their  negligence.  Their  relatives  also  will  later  be  held 
responsible  for  the  debts  of  the  bank,  their  property,  if  necessary, 
being  confiscated,  and  they  themselves  perhaps  being  heavily  punished 
besides. 

It  will  be  seen  that  with  these  somewhat  rigid  methods  of  native 
bauking.  and  particularly  with  their  widely  extended  guilds,  which 
reach  practically  every  section  of  the  country,  it  is  entirely  possible 
for  the  foreigners  who  wish  to  make  purchases  in^  the  interior 
through  the  connections  which  the  foreign  banks  have  with  the 
native  banks  to  make  payments  anywhere  in  China  and  to  transfer 
money  without  risk  of  loss  and  at  rates  that  may  be,  on  the  whole, 


52        GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

under  the  circumstances,  considered  reasonable.  The  charges  for 
transfers  run  often  as  high  as  7  or  8  per  cent  for  thirty  days,  and  if 
money  is  borrowed  for  a  considerable  period  of  time  rates  of  11  per 
cent,  or  even  higher,  per  annum  are  charged. 

Besides  the  banking  business  mentioned  above,  which  refers,  of 
course,  primarily  to  the  exchange  and  loan  business,  should  be  men- 
tioned that  of  the  cash  shops  which  are  found  everywhere  in  China, 
in  many  cases  several  in  comparatively  small  cities.  Inasmuch 
as  in  the  interior,  and  for  that  matter  in  the  native  trade  in 
the  open  ports,  the  business  is  done  entirely  with  copper  cash  and 
with  chunks  of  silver  (sycee),  it  is  desirable  that  each  person  have 
the  opportunity  to  secure  readily  copper  cash  in  practically  any 
quantity  needed  for  local  business.  It  is  the  business  of  the  cash 
shops  to  exchange  cash  for  silver,  and  vice  versa.  In  very  many 
cases  also  these  cash  shops  issue  their  cash  notes  after  the  manner 
already  indicated  in  connection  with  the  more  important  loan  banks. 
These  notes  are  often  for  very  small  sums,  representing  often  not 
more  than  $0.50  or  $0.25  gold,  and  sometimes  as  low  as  $0.05. 

BUSINESS  IN  THE  INTERIOR. 

The  Chinese  have  usually  been  considered  by  foreigners  not  merely 
unprogressive  but  also  unenterprising.  It  is  often  thought  that  they 
are  largely  hand  laborers,  probably  because  we  see  so  many  engaged 
in  hand  labor  in  this  country.  The  Chinese  are  doubtless  dominated 
by  custom  to  a  somewhat  greater  extent  than  we  are  in  this  country. 
Invention  has  not  been  stimulated  there,  and  there  is  less  mechanical 
l^rogress  by  far  than  here.  In  their  own  Avay,  however,  the  Chinese 
are  by  no  means  unenterprising,  and  probably  a  larger  proportion 
of  the  Chinese  have  a  shrewd  instinct  for  trade  and  trading  than  the 
citizens  of  any  other  country.  The  Chinese  is  a  born  speculator 
Avhatever  his  nominal  occupation  may  be.  Wlienever  he  engages  in 
labor  he  usually  prefers,  if  it  is  possible,  to  work  by  the  job,  in  order 
that  he  may  make  something  extra  by  unusual  diligence  or  may  so 
arrange  his  work  as  to  manage  his  time  to  suit  himself,  in  many 
cases  engaging  assistants  to  help  him  in  his  work. 

All  through  the  interior  of  China  there  are  great  highways  which 
for  centuries  have  been  important  trade  routes.  Over  these  roads 
in  many  cases  go  huge  caravans  of  camels,  or  mules  and  donkeys,  or 
carts,  cari-ying  goods  from  one  section  to  another,  ov  from  the  interior 
to  the  frontier,  Avhere  they  Avill  l)e  transported  to  foreign  countries. 
Over  the  minor  traflic  routes  there  are  continually  going  men  with 
AvhcclbiUTows,  cai-i-yiiig  from  tAVo  to  six  hundred  pounds  of  local 
freight  for  distances  of  from  ten  to  one  or  two  hundred  miles,  in 
order  to  secure  the  profit  that  comes  from  bringing  goods  into  a 


GOLD  STANDARD  IN  TNTERNATTONAL  TRADE.        53 

l()c;ili(y  where  (liev  iii'e  more  in  (leiiuiiid  (liaii  a(  (he  phicc  of  their 
oi'iliiii.  riiere  are  many  h)eal  I'aetories  pi'cxhieini;',  lor  example, 
eurtheiiware,  or  iuceiise,  or  a  peeuliar  kind  of  material  tor  cdotliing 
or  ornament,  or  other  native  prochict  whieli  is  in  demand  for  from 
fifty  to  two  or  three  liundrod  miles  from  the  phice  of  mannfaetui'e. 
Such  h)cal  ooods  are  very  fi'e(|nently  transjjorted  by  pack  mnles. 
wheelbarrows,  or  on  tlie  shonhlers  of  men,  who,  with  a  pole  some  G 
feet  in  length  over  their  shoulder,  with  a  bundle  on  each  end.  will 
carry  for  distances  of,  say,  100  miles  from  50  to  150  pounds.  In 
very  many  instances,  })robably  almost  universally,  these  individual 
traders  are  not  hired  men  carrying  goods  for  wages,  but  are,  rather, 
individual  speculators,  who  buy  their  goods  from  the  factory  and 
carry  them  to  a  place  of  sale,  making  their  wages  from  the  profits. 
For  example,  in  the  Province  of  Honan,  between  Changte  and 
Taok'ou,  many  wheelbarroAV  men  were  met  who  were  carrying  on 
their  barrows  earthen  jars  from  the  south  to  the  north  a  distance  of 
some  hundred  miles,  and  bringing  the  powdered  wood  of  the  hills 
back  again.  Nearly  all  of  the  work  of  distributing  the  bluish-wdiite 
coarse  pottery  of  T'suchou  is  done  by  these  wheelbarrows.  Two  men, 
or  a  man  with  a  donkey,  will  carry  on  a  wheelbarrow  a  load  of  from 
four  to  six  hundred  pounds,  with  a  capital  investment  of  from  $5 
to  $().  The  trip  takes  them  from  four  to  five  days,  they  making 
some  20  miles  a  day.  They  hope  for  a  profit  of  some  G  or  7  cents 
a  day  over  and  above  food  and  fodder  for  themselves  and  beast. 

Two  men,  one  pushing,  the  other  pulling  a  heavy  wheelbarrow 
load^  said  that  they  were  wheeling  400  catties  (53-3  pounds)  of  incense. 
This,  when  nuxed  with  the  powdered  bark  of  a  tree  and  rolled  Into 
sticks,  makes  the  joss  sticks  so  often  seen  burning  in  temples  and 
before  shrines.  These  men  went  about  20  miles  a  day,  and  were 
going  altogether  a  distance  of  100  miles.  They  thought  they  would 
make  enough  profit  to  pay  their  expenses  fairly  well. 

Others  w^ere  hauling  millstones  on  low  "  jumpers  ■'  with  a  cow  or 
donkey  to  haul  it.  In  this  case  they  seem  to  make  somewhat  more 
l)rofit.  A  stone  costing  1,000  cash  at  the  quarries  brings  5,000  cash  at 
its  destination.  The  traveling  expenses  for  five  days  for  man  and 
beast  would  amount  to  not  more  than  3,000  cash,  thus  leaving  a  i:)rofit 
on  the  two  stones  of,  say,  8,000  cash — say,  $-t  or  $5. 

In  North  China  some  intervieAvs  with  pole  men — tliat  is,  men  carry- 
ing loads  on  each  end  of  a  pole  balanced  across  their  shoulders — gave 
somewhat  similar  results.  One  man,  for  example,  making  a  round  tiip 
from  Mongolia  to  T'ung-chou,  near  Peking,  every  fifteen  days,  Avould 
carry  700  cheap  fans.  lie  A\'ould  buy  them  at  1*116  i-ate  of  5  cash  for 
two  fans  and  sell  them  for  10  cash  each,  making  thus  a  profit  of  7^ 
cash  per  fan.  He  would  thus  be  making  wages,  if  he  sold  promptly 
his  stock  and  kept  l)usily  at  work',  of  some  $0.18  a  day.  out  of  which  lie 


54  GOLD   STANDARD    IN    INTERNATIONAL    TRADE. 

\\  oiikl  l)oarcl  and  lodge  himself.  xA.iiotlier  man  with  cheap  straw  hats, 
of  which  he  coidd  carry  200,  buying  at  25  cash  each  and  selling  at  40, 
would  make  a  profit  of  15  cash,  or  3,000  cash — say,  $1.50  to  $2 — for  his 
fifteen  days'  work,  this  being  less  profitable ,  than  the  other.  Even 
these,  however,  do  a  munificent  business  as  compared  Avith  the  dung 
gatherers,  wdio  are  able  to  pick  up  on  the  roads  from  one  to  two  baskets 
of  dung  a  day,  which  they  sell  from  10  to  20  cash  each,  giving  them  an 
income  of  from  half  a  cent  to  2  or  3  cents  a  day.  It  should  be  kept  in 
mind,  however,  that  these  dung  gatherers  are  mostly  elderly  men  who 
are  too  feeble  to  work  at  hard  labor,  or  children  who  have  not  j^et  be- 
gun the  serious  work  of  life,  so  that  it  is  not  to  be  expected  that  their 
income  would  be  in  proportion  to  that  of  regular  workers.  That  the 
Avork  is  carried  on  at  all,  however,  is  a  most  striking  instance  of  the 
thrift  of  the  Chinese  and  of  their  willingness  to  use  their  time  in  some 
industrious  way,  even  thougli  the  returns  are  very  small. 

A  better  estimate  as  to  wages  may  be  made  from  the  statement 
of  one  of  the  largest  railway  contractors,  a  Chinese,  on  the  Peking- 
Hankow  Railroad.  His  company  had  some  five  or  six  thousand  men 
at  work  doing  grading  and  such  other  unskilled  labor.  When  hiring 
men  by  the  day  in  the  winter,  when  there  was  little  demand,  he  paid 
140  real  cash,  say,  in  the  neighborhood  of  $0.09 ;  in  the  summer  time, 
when  the  demand  for  laborers  on  the  farms  was  much  greater,  he  paid 
possibly  double  that.  Instead  of  hiring  men  by  the  day,  he  often  con- 
tracted with  them  to  remove  earth  by  the  cubic  feet,  his  rate  being  in 
Avinter  100  cash  per  100  Chinese  cubic  feet — in  round  numbers,  110 
cubic  feet.  In  the  summer  time  for  the  same  amount  he  would  have 
to  pay  300  cash  ($0.15  to  $0.20)  at  least. 

Tliese  men,  small  as  is  their  income,  are  nevertheless  not  unintelli- 
gent, and  the  smallness  of  their  earnings  makes  it  imperative  that  they 
do  their  work  as  thriftily  as  possil)le.  In  most  cases,  buying  as  they 
do  in  one  locality  and  selling  their  goods  in  another  locality  somewhat 
remote,  they  are  almost  certain  to  be  trading  in  two  or  more  kinds  of 
money.  Often  the  cash  which  are  employed  in  one  locality  are  of  a 
different  quality  from  those  in  the  other  locality  Avhere  their  goods 
are  sold,  and  it  is  quite  possible  that  on  their  way  from  the  place  of 
pui'chase  to  that  of  sale  they  liaA^e  had  to  pay  their  expenses  in  cash 
of  still  a  different  kind.  Attention  has  already  been  called  to  the  fact 
that  the  taels  in  the  different  ports  vary,  but  the  A^ariations  are  no  less 
frequent  in  the  interior. 

At  Wei  HavcI-Fu,  in  the  province  of  Honan,  it  Avas  desired  to  send  a 
telegram.  The  agent  Avas  given  20.73  Kungfa  taels,  which  he 
AveiglK'd  and  said  were  e(pial  to  19.98  Wei  HAvei  taels.  The  price  of 
the  telegi'am  Avas  reckoned  first  in  cash,  amounting  to  14.()88  cash, 
at  1,030  cash  to  the  tael  according  to  his  rate  of  exchange,  or  14.26 
Wei  Hwei  taels.     In  TTupeh  dollars,  in  wliich  he  wished  to  be  paid. 


HOLD    ?5TANDAKn    TN    INTERNATIONAL    TRADE.  55 

he  li^iiicHl  lilt'  bill  at  t^l8.;5G.  It  will  be  noted  Itoim  the  above  ealcu- 
latioii  that  1  Kungfa  tael  equals  0.9(537  of  a  Wei  Havci  tael. 

At  T'su-choii,  near  the  border  of  the  province  of  Chili,  we  learned 
that  the  local  T'su-chou  commercial  tael  was  to  the  K'np'ing  tael, 
the  official  tael  of  Peking,  as  1,021  to  1,000.  The  K'up'ing  tael  is  to 
the  Chingping  tael,  also  used  locally  in  that  department,  as  1,000  is 
to  1,0(50,  whereas  the  K'up'ing  tael  is  to  the  Kungfa  tael,  the  common 
tael  in  commercial  use  in  Peking  in  the  same  province,  as  1,000  to 
1,012.  It  is  interesting  to  note  that  in  that  locality,  T'su-chou,  49^ 
real  cash  count  as  100,  while  in  T'ung-cliou,  near  Peking,  48  real  cash 
count  for  100. 

Almost  invariably  the  number  of  cash  which  passes  for  100  is 
somewhat  less  than  100,  one  or  two  at  least — it  being  assumed,  we 
suppose,  that. the  person  who  strings  them  may  deduct  one  or  two  cash 
for  the  furnishing  of  the  string  and  the  trouble  of  stringing  them. 
What  is  still  more  j^uzzling,  however,  is  the  fact  that  a  large  propor- 
tion of  the  cash  now  in  use  are  counterfeit  (or  perhaps  one  should 
rather  say  are  made  l)y  private  individuals),  are  often  small  in  size 
and  of  very  poor  quality.  In  certain  localities,  where  this  is  common, 
the  cash  shops,  and  in  consequence  the  ordinary  dealers  and  small 
traders  of  the  kind  mentioned  above,  have  by  custom  agreed  that 
there  shall  be  say  from  10  to  50  small  poor  cash  in  every  tliousand, 
or,  instead  of  this,  the  number  of  good  cash  which  shall  count  for  a 
thousand  may  be  reduced. 

The  most  bewildering  system  of  cash  counting  in  the  Empire 
probably  is  found  in  Peking.  One  of  the  emperors,  Hien  Fung, 
about  the  middle  of  the  last  century,  thinking  it  desirable  to  have 
somewhat  larger  coins,  made  some  10-cash  pieces;  but  finding  the 
system  very  profitable,  he  did  not  make  them  10  times  as  large  as  the 
former  1-cash  piece,  but  only  about  twice  as  large.  Then  he  made  an 
over  issue.  The  consequence  is  that  the  average  cash  piece  found 
in  Peking  at  the  present  time  is  marked  as  a  10-casli  piece  and  counts, 
if  few  cash  are  used,  as  a  2-cash  piece  when  compared  with  the  real 
cash  found  elsewhere.  In  local  counting,  however,  when  one  begins 
to  count  cash  by  the  hundreds  or  by  the  tiao  (thousand),  there  is  a 
curious  combination.  Each  piece  counts  as  1  cash  until  as  many  as  10 
are  used.  Above  10  each  piece  counts  for  20  in  the  local  language, 
that  is  to  say,  200  cash  means  actually  10  of  these  10-cash  pieces; 
therefore  1  tiao  (a  thousand  cash)  means  only  50  pieces;  but  with  the 
usual  discount  that  is  made  by  the  string  one  finds  actually  only  48 
pieces — that  is  to  say,  the  48  pieces  equal  in  count,  not  necessarilj^  in 
value,  9G0  pieces  of  the  ordinary  cash,  the  two  being  allowed  for  the 
string.  In  T'ung-chou,  a  few  miles  away,  the  string  which  counts  for 
a  thousand  would  be  nominally  500  cash,  as  each  one  in  that  locality 
is  supposed  to  be  ecjual  to  two,  but  as  a  matter  of  fact,  two  being  taken 


56       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

out  for  the  string,  there  are  really  496  pieces  to  the  thousand.  About 
10  per  cent  there,  it  is  understood,  may  be  jooor  casli. 

These  examples,  of  course,  might  be  nudtiplied  many-fold  if  one 
were  to  travel  through  China  and  note  the  specific  customs  found  in 
the  different  places.  When  one'  takes  into  consideration,  therefore, 
the  fact  that  the  Chinese  are  all  traders,  and  that  a  very  large  propor- 
tion of  the  common  people  are  buying  and  selling  to  jirobably  a 
greater  extent,  so  far  as  the  proportion  of  their  income  is  concerned, 
than  the  residents  of  almost  any  other  country,  it  becomes  a  question 
whether  in  any  other  country  in  the  world  a  common  people  can  be 
found  who  would  so  readily  understand  the  intricacies  of  monetary 
practice  or  who  would  so  readily  learn  the  peculiarities  of  a  new 
system  of  mone3^ 

The  fluctuations  in  the  price  of  silver  as  compared  with  the  price  of 
copper  make  the  rates  of  exchange  mentioned  above  variable,  so  that 
although  the  ratio  of  the  Shanghai  tael,  for  example,  to  the  K'up'ing 
tael,  is  substantially  invariable,  the  value  of  either  in  terms  of  copper 
cash  varies  from  day  to  day,  as  well  as  in  terms  of  gold.  The  value 
of  silver  during  the  last  twenty  years  has  diminished  more  in  terms  of 
gold  than  has  the  value  of  copper  cash.  Sir  Charles  J.  Dudgeon, 
chairman  of  a  special  committee  to  investigate  the  subject,  reported 
that,  as  compared  with  gold,  silver  between  1882  and  1902  had  depre- 
ciated 49.7  per  cent,  while  copper  cash  had  dej^reciated  only  26.6  per 
cent.  The  same  matter  is  stated  in  a  somewhat  different  and  more 
illuminating  way  by  Mr.  J.  W.  Jamieson,  commercial  attache  of  the 
British  legation,  in  the  following  table : 

[natum. — In  1882,  5s.  2d.  =  l  Ilaikwan  tael  =  1,090  cash.     In  1002,  2s.  7.2d.  =  l  Haikwan 

tael  =  1,240  cash.] 

In  terms  of  gold—                                                                                                         Per  cent 
Taels  have  depreciated 49.7 

A  fall  from  02d.  to  31.2d. 
Cash  have  depreciated 31.4 

In  1882,  3,240  cash  bought  3s.  9id. 

In  1902,  1,240  cash  bought  2s.  T^d. 
In  terms  of  cash — 

Taels  have  depreciated 20.  G 

A  fall  from  1,090  cash  to  1,240  cash. 
Gold  has  appreciated 4.5.0 

In  1882,  2s.  7|,d.  l)ought  8,50  cash. 

In  1902,  2s.  T^d.  bought  1,240  cash. 
In  terms  of  silver — 

Ca.sh  have  a])prociated 30.4 

In  1882,  1,090  cash---!  tael. 

In  1902,  1,210  cash=l  tael. 
Gold  has  ai)preciated 99 

In  1882,  1  tael=5s.  2d. 

In  1902,  1  tael=2s.  7Jd. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.        57 

The  samples  given  above  of  the  income  derived  by  traders  and 
"VNorkingnien  of  different  chisses  serve  to  show  also  how  very  essential 
it  is  that  in  the  introduction  of  any  monetary  system  into  China  there 
be  a  nnit  coin  which  is  very  small  in  value,  one  comparable  with  the 
present  1-cash  piece,  which  may.  in  round  numl)ei"s  perhaps,  be  spoken 
of  as  one-twentieth  of  an  American  cent. 

In  several  of  the  proxinces,  in  order  to  avoid  in  part  the  difficulties 
which  arise  from  carrying  such  large  quantities  of  coins  so  small  in 
value,  as  well  as  to  secure  the  jirofit  which  comes  from  coinage,  the 
viceroy's  have  been  introducing  ncAv  coins — 10-cash  pieces.  These 
pieces  are  issued  nominally  at  their  face  value,  10  of  what  are  called 
the  real  cash.  "When  they,  however,  are  put  into  circulation  at  some 
distance  from  the  place  where  they  are  minted,  they  often  do  not  pass 
at  their  full  value.  For  example,  at  Wei  HAvei-Fu,  in  the  province 
of  Honan,  the  local  nuigistrate  reports  that  occasionally  copper  10- 
cash  pieces  of  the  central  government  are  seen  there,  which  have  been 
sent  down  from  Peking  by  the  Board  of  ReA^enue  to  be  introduced 
into  the  circulation.  So  also  some  other  10-cash  pieces  haA^e  come  from 
the  proAnnce  of  Hupeli,  Avhere  they  are  coined  by  the  A^iceroy,  and  are 
in  pi'etty  general  use ;  but  so  far  from  home  they  pass  for  only  G  cash. 

Still  another  source  of  confusion  which  disturbs  local  trade  in  con- 
nection Avith  the  monetar}^  system  is  the  A'^ariation  of  the  commercial 
rate  of  the  tael  in  most  places  most  decidedly  from  the  GoA^ernment's 
rate.  In  the  interior  the  only  money  actually  in  circulation  in  ordi- 
nary local  traffic  is  the  cash.  The  GoA'ernment  officials,  howcA'cr, 
haA'e  had  their  salaries  fixed  in  taels,  and  the  taxes  Avhich  they  are 
compelled  to  remit  to  the  central  GoA^ernment  are  also  in  taels.  Their 
salaries,  haA'ing  been  fixed  many  A^ears  ago,  since  sih^er  has  fallen  in 
value.  haA^e  A^ery  greatly  declined.  In  consequence  a  salary  which 
formerly  might  haA'e  been  reasonable  is  at  the  present  time  entirely 
insufficient.  The  central  GoA^ernment  has  perhaps  been  able  to  bear 
its  OAvn  troubles  by  increasing  the  number  of  taels  demanded  from 
the  local  official,  but  it  is  not  possible  for  him  nominally  to  increase  his 
own  salary.  He  has,  howcA^er,  in  most  cases  been  able  to  raise  the 
rate  at  Avhich  taxes  IcA'ied  in  taels  must  be  paid  in  cash. 

For  example — to  give  one  out  of  many  instances — at  one  of  the 
smaller  places  in  the  interior  province  of  Honan  the  local  magistrate 
said  that  the  tael  in  circulation  there  exchanged  in  trade  at  the  rate 
of  1,100  cash  (in  another  tov^ni  W  miles  aAvay  the  rate  Avas  1,130). 
The  rate,  hoAVCA^er,  at  which  he  collected  taxes  Avas  2,000  cash  to  the 
tael  (SeA^eral  other  magistrates  had  stated  that  they  collected  at  the 
rate  of  2,400  per  tael,  Avhile  one  collected  at  1,800  only.  This  kindly 
magistrate  Avas  soon  remoA^ed,  to  the  great  sorroAV  of  his  constituents, 
Avho,  on  his  departure,  almost  buried  him  under  complimentary 
red  umbrellas).     Of  the  2,000  cash  collected  from  the  people,  1,200 


58        GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

was  sent  to  the  capital  f or  eveiy  tael  of  taxes  which  had  to  be  remitted. 
The  remaining  1,400  was  kept,  as  the  magistrate  explained,  for  "  local 
expenses."  His  interpreter,  a  friendly  Chinese  of  foreign  training, 
who  saw  no  objection  to  the  facts  being  known,  explained  in  an  aside 
that ''  local  expenses  "  meant  the  magistrate's  own  pocket.  This  is  the 
nsual  explanation  of  the  nse  that  is  made  of  the  difference  between  the 
local  commercial  rate  for  the  tael  and  the  official  rate.  By  doubling 
the  number  of  cash  per  tael  which  the  j^eople  must  pay,  and  retaining 
half  for  his  own  use,  the  magistrate  manages  to  increase  his  salary  to 
a  living  sum. 

Besides  the  bank  notes  which  have  already  been  mentioned  in  con- 
nection with  the  banks  above,  some  of  th(^  provinces  issue  provincial 
notes.  For  example,  as  already  stated,  the  province  of  Hupeh  issues 
one-dollar  notes,  f)ayable  on  demand  in  the  Hupeh  dollar,  one  of  the 
best  silver  dollars  issued  in  China  and  substantiallj^  equal  in  weight 
and  value  to  the  British  dollar  of  Hongkong.  There  is  said  to  be  a 
large  silver  reserve  back  of  these  notes,  although  there  is  no  specific 
requirement  in  the  law  as  to  the  amount  of  this  reserve.  So  far,  how- 
ever, there  has  been  no  trouble  regarding  their  redemption,  and  the 
notes  pass  at  par. 

In  the  proA^nce  of  Honan  the  provincial  government  issues  bills 
for  a  thousand  cash  (say,  $0.50),  and  even  for  sums  as  small  as  500 
cash  (say,  $0.25).  These  notes  hav.e  been  in  circulation  for  some  five 
or  six  yearns,  pass  at  par  with  silver,  and  are  redeemed  regularly  at  par 
by  the  Government.  Although  there  is  no  provision  made  for  their 
direct  redemption  in  the  outlying  cities,  nevertheless  the  local  magis- 
trates at  times  receive  them  in  payment  of  Government  dues. 

The  above  statements  Avith  reference  to  tlie  methods  of  doing  busi- 
ness in  China,  both  in  connection  with  the  foreign  trade  and  with  the 
local  trade  in  the  interior,  show  beyond  question  the  dire  confusion 
whi(^h  exists  in  connection  with  the  use  of  money  and  the  very  great 
advantage  that  of  necessity  would  come  if  a  uniform  system  were 
provided  throughout  the  country.  The  question  as  to  the  relative 
advantage  or  disadvantage  of  having  the  system  on  a  silver  basis  or 
on  a  gold  need  not  be  discussed  here,  as  that  is  taken  up  in  detail  in 
Appendixes  A,  I  and  II. 

OPINIONS  REGARDING   THE  MONETARY   SYSTEM. 

A  factor  of  possibly  equal  importance  with  actual  business  condi- 
tions, however,  is  that  of  the  opinions  of  business  men  and  of  the 
common  peojole  who  are  doing  business  in  a  small  Avay.  If  they  are 
content  with  their  present  system,  the  change  will  come  slowly.  If, 
however,  they  are  intelligent,  and  their  content  simply  comes  from 
the  fact  that  (hey  have  never  thought  of  anything  better,  there  is  no 
reason  why  <hey  should  not  readily  adopt  an  im])rovenu'nt  when  its 


GOLD  STANDARD  TIN"  INTERNATIONAL  TRADE.         59 

advantages,  as  foiiiparc'd  with  tliosc  of  the  prosciit  systoin,  arc  once 
clearly  put  before  them. 

(a)  Foreigner's. — Amono^  the  foroif»;n  business  men  of  all  nationali- 
ties in  China  there  is  practically  but  one  opinion  regarding  the  grave 
evils  connected  with  the  present  monetary  confusion  and  the  need  for 
reform.  As  has  alreadj^  been  explained  in  the  first  volume  of  the 
Commission's  report,  the  foreign  chambers  of  commerce  of  Tientsin, 
Shanghai,  and  Hongkong  have  discussed  the  question,  and  have 
urged  upon  the  Chinese  Government  the  desirability  of  bringing 
about  a  reform  as  soon  as  possible.  Acting  largely  on  their  sugges- 
tions, also,  the  treaty  commissioners  of  the  United  States,  Great 
Britain,  and  Japan,  in  making  their  new  commercial  treaties  with 
China,  brought  forward  this  question,  and  secured  in  their  treaties  a 
section  which  pledged  the  Chinese  Government  to  establish  a  uniform 
monetary  sj^stem,  the  coins  of  which  should  be  legal  tender  through- 
out the  Empire.  Nothing  was  said  in  the  treaty  as  to  whether  these 
coins  should  be  silver  coins  with  their  value  fixed  by  the  weight,  or 
whether  they  should  be  given  a  gold  value,  and  be  themselves  really 
token  coins. 

The  only  point  of  difference  that  appears  in  the  discussions  regard- 
ing the  monetary  reform  among  the  foreigners  in  China  is  as  to  the 
method  by  which  such  a  reform  should  be  brought  about.  All  are 
agreed  that  the  system  should  be  a  uniform  one  throughout  the 
Empire.  All  are  agreed  that  the  imperial  coins  should  be  legal  tender 
everywhere  in  the  Empire  and  should  be  received  by  the  Government 
at  full  valiie  in  the  payment  of  Government  obligations.  All  seem 
likewise  to  agree  in  the  opinion  that  these  coins  should  be  given  a  gold 
value. 

The  one  question  at  issue  is  whether  this  gold  value  can  be  given 
the  coins  at  the  time  they  are  issued,  so  that  the  new  system  may 
really  be  inaugurated  on  the  gold  basis,  as  was  done  in  the  introduc- 
tion of  the  new  monetary  system  in  the  Philippine  Islands,  or 
whether  this  is  too  much  to  expect  from  China,  and  whether  it  would 
be  best  to  strive  simply  for  uniform  silver  coins,  with  the  hope  that 
some  time  or  other,  in  some  unknown  way,  these  coins  might  be  given 
a  fixed  value  in  gold.  The  merits  of  the  two  plans  are  discussed  at 
length  in  Appendix  A,  II.  It  is  worthy  of  note,  however,  that  a  good 
many  of  the  foreign  residents  who  had  formerly  been  of  the  opinion 
that  it  would  be  useless  for  China  to  attempt  to  begin  the  system  on  a 
gold  basis,  after  a  more  detailed  study  of  the  question  in  connection 
with  the  American  commissioner,  changed  their  views  and  said  that 
they  believed  that  the  American  plan  was  entirely  practicable,  and 
that,  on  the  whole,  it  would  be  easier  than  the  plan  advocated  by 
themselves  earlier,  provided  China  intended  to  attempt  at  any  time 
within  a  reasonable  period  to  give  to  lier  silver  coins  a  fixed  gold  value. 


60        GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

{h)  The  Chinese. — In  speaking  of  the  opinions  of  the  Chinese 
regarding  monetary  reform,  one  should  keep  in  mind  separately,  first, 
the  officials ;  second,  the  larger  business  men ;  third,  the  common 
people. 

THE   OFFICIALS. 

Speaking  generally,  the  officials  at  the  time  the  American  commis- 
sioner visited  China  had  not  studied  the  question  at  all  carefully,  and 
of  course  most  of  them  have  not  studied  it  at  the  present  time.  In  the 
next  section  certain  characteristics  of  the  officials  in  connection  with 
their  governmental  work  will  be  brought  out,  but  it  should  be  men- 
tioned here  that  the  officials,  from  their  training  and  from  their  prac- 
tice in  governmental  matters,  have  very  little  knowledge  of  business 
or  of  business  methods  excepting  so  far  as  they  concern  the  collection 
of  taxes  and  the  expenditures  which  they  make.  Even  in  these  mat- 
ters, however,  they  deal,  not  in  accordance  with  what  are  ordinarily 
called  business  principles,  but  rather  in  many  cases  in  an  arbitrary 
Avay,  so  that  their  experience  gives  them  little  insight  into  business 
principles.  It  is  not  meant  to  assert,  of  course,  that  the  officials  are 
not  men  of  ability.  In  very  many  cases,  in  doubtless  all  cases,  so 
far  as  the  higher  officials  are  concerned,  the  men  have  ability,  often 
of  a  very  high  order  indeed,  but  their  minds  have  been  turned  in 
other  directions  and  they  often  exhibit  most  astonishing  ignorance  of 
the  most  fundamental  principles  of  monetary  science. 

The  central  Government  demands  of  its  officials,  as  a  rule,  that 
there  be  no  disturbance  in  their  provinces  or  districts,  and  that  the 
people,  so  far  as  possible,  be  kept  content  and  prosperous.  If  there 
is  no  complaint  from  the  locality,  the  official  is  ordinarily  considered 
successful.  The  effect  of  this  attitude  of  the  central  Government  is, 
however,  always  in  favor  of  the  maintenance  of  existing  conditions, 
and  is  decidedly  against  the  making  of  experiments  which  may  pos- 
sibly prove  unfortunate. 

Most  of  the  higher  officials  had  some  knowledge  of  the  intentions  of 
the  central  Government  toward  monetary  reform  on  account  of  the 
provisions  in  the  foreign  treaties,  and  they  had  heard  the  matter  some- 
what discussed.  ISlany  of  the  lower  officials,  however,  even  some  as 
high  in  rank  as  the  governors  of  provinces,  had  merely  heard  the  ques- 
tion suggested  and  had  never  attempted  to  look  into  the  matter  at  all 
carefully.     Such  men,  of  course,  had  no  information  whatever. 

Those  who  had  heard  the  question  discussed  naturally  found  their 
first  inclination  in  favor  of  changing  the  pi'esent  system  as  little  as 
jK)ssiblc,  or  of  adapting  the  new  system  in  some  way  to  the  present 
one,  so  that  the  i)eople  would  not  notice  any  material  change.  In 
consequence,  if  they  were  people  who  had  dealt  largely  with  persons 
in  the  interior,  they  were  inclined  to  believe  that  it  would  be  wise 


GOLD    STANDARD    IN    INTKRNATIONAL    TKADP^  (U 

for  the  new  unit  to  be  the  tael,  provided  a  uniform  system  were 
adopted.  The  higher  officials  who  had  any  information  on  the  sub- 
ject were  unanimous  in  the  opinion  that  some  uniform  system  shoukl 
be  established,  although  they  did  not  hesitate  to  say  in  many  cases 
that  it  would  be  very  difficult  to  establish  such  uniformity  on  account 
of  the  probable  unAvillingness  of  the  viceroys  to  give  up  the  profits 
from  their  provincial  mints,  and  their  belief  that  the  central  Govern- 
ment, if  it  assumed  the  management  of  the  mints,  would  deprive  the 
provincial  officials  of  these  profits. 

The  higher  officials,  Avho  had  been  more  or  less  familiar  Avith  for- 
eign trade  from  residence  in  the  treaty  ports,  or  who  had  recognized 
the  disadvantage  under  which  China  had  been  placed  in  the  payment 
of  the  indemnity  and  of  the  foreign  loans  on  a  gold  basis  on  account 
of  the  fall  in  the  price  of  silver,  Avere  quite  generally  of  the  opinion 
that  the  new  SA^stem  should  be  not  merely  a  uniform  one  throughout 
China,  but  that  it  should  be  placed  on  the  gold  basis  as  soon  as  that 
could  be  done.  AVith  their  idea  that  changes  should  be  made  as  grad- 
ually as  possible,  and  that  old  customs  should  be  adhered  to  as  long 
as  possible,  they  rather  inclined  at  first  to  think  that  it  would  be  better 
to  begin  the  system  with  the  coinage  of  silver  and  copper  coins,  which 
should  gradually  be  made  uniform  throughout  the  Empire,  and  that 
later  on  the  question  of  giving  to  these  a  gold  value  should  be  taken 
up.  They  had,  however,  with  practically  no  exceptions,  not  studied 
carefully  the  matter  of  making  the  change,  and  had  no  knowledge  of 
what  such  a  plan  involved.  In  many  cases  they  had  apparently  taken 
their  views  from  publications  of  some  of  the  English  business  men 
mentioned  above,  some  of  whom  have  since  changed  their  own  opin- 
ions on  the  question. 

It  is  interesting  to  note,  also,  that  some  of  these  same  officials,  when 
the  matter  had  been  thoroughly  discussed  with  them,  and  particu- 
larly when  the  relative  costs  of  the  two  methods  had  been  presented 
to  them  as  outlined  in  Appendix  A,  II,  changed  their  views,  and 
said  frankly  that  they  believed  the  Chinese  Government  would  be 
compelled  either  to  adopt  as  a  whole  the  plan  recommended  by  the 
American  Commission,  or  to  abandon  entirely  for  the  present  the 
idea  of  securing  any  but  a  silver  system.  More  and  more,  however, 
of  the  leading  thinkers  among  these  officials,  as  they  studied  the  ques- 
tion, gradually  came  apparently  to  the  view  that  it  would  be  wise,  if 
a  sufficient  support  could  be  secured  from  the  viceroys,  to  adopt  the 
plans  of  the  American  Commission,  and  to  put  them  into  effect  as 
soon  as  that  could  conveniently  be  done. 

The  chief  objection  apparently  in  their  minds  and  the  one  which  it 
seemed  most  difficult  to  remove  was  the  apparent  necessity  of  cnijiloy- 
ing  foreigners  as  experts  to  advise  regarding  the  management  of  the 
new  system.     They  felt  that  since  a  system  on  the  gold  basis  was  so 


62  GOLD    STANDARD    IN    INTERNATIONAL   TRADE. 

decidedly  different  from  anything  that  they  were  accustomed  to,  no 
Chinese  officials  had  sufficient  expert  knowledge  to  j^ut  it  into  effect. 
Naturally,  from  their  unfortunate  experiences  with  foreigners,  they 
hesitated  to  give  into  the  hands  of  foreigners  any  more  control  than 
should  be  necessary  in  a  matter  so  important.  Naturally,  also,  they 
suspected  decidedly  the  motives  of  foreigners  who  were  offering  as- 
sistance and  giving  advice.  As  the  plans  of  the  American  Commis- 
sion developed,  hoAvever,  it  is  interesting  and  important  to  note  that 
the  suspicion  apparently  gradually  waned  imtil,  when  the  motives  of 
the  American  Government  were  clear,  it  disappeared.  Those  who 
studied  the  matter  thoroughly  with  the  United  States  commissioner 
seemed  to  be  convinced  finally  of  the  fact  that  the  United  States  Gov- 
ernment had  no  designs  whatever  upon  the  sovereignty  of  the  Chinese 
Empire,  and  no  thought  of  attempting  to  secure  control  of  the  mone- 
tary system,  and  that  it  was  expecting  to  derive  its  benefits  from  the 
reform  solely  from  the  improved  business  conditions  which  would 
result  if  the  reform  were  put  into  effect. 

Even  when  this  matter  apparently  became  clear,  it  is  probable  that 
there  was  some  feeling  on  the  part  of  some  of  the  officials  at  least 
that,  if  the  system  recommended  by  the  American  Commission  were 
adopted,  it  would  deprive  them  of  some  of  the  power  and  prestige 
which  they  would  enjoy  under  a  system  which  could  be  managed  by 
themselves  without  foreign  expert  assistance. 

The  experience  of  the  Chinese  Government  with  the  imperial  mara- 
time  customs  service  was  evidently  in  the  minds  of  many  of  the 
officials.  Although  the  customs  service  is  managed  by  Sir  Robert 
Hart  with  the  greatest  ability ;  although  the  Chinese  officials  appreci- 
ate this  fact  and  trust  Sir  Robert's  integrity;  and  although  they 
recognize  very  maii}^  of  the  benefits  which  have  accrued  to  China  from 
its  efficient  management,  they  still  feel  that  the  chief  credit  for  this 
management  has  gone  to  foreigners;  that  Sir  Robert  has  so  managed 
the  service  that  its  power  through  the  high  offices  is  entirely  in  the 
hands  of  foreigners,  and  that  apparently  no  effort  has  been  made  so 
to  train  native  Chinese  that  they  may  gradually  take  control  of  the 
management  of  the  service,  and  ultimately  replace  the  foreign- 
ers. They  feel  very  bitterly  in  many  instances  toward  Sir  Robert 
and  the  foreign  management,  because  they  see  no  likelihood  of  the 
Chinese  being  able  in  the  near  future  to  replace  the  foreigners  in  that 
service.  They  are  determined  that  no  other  similar  opportunity 
shall  be  given  for  foreigners  to  secure  control  of  another  important 
dei)artment  of  Chinese  administration.  The  motive  which  they 
assign  is  naturally  a  patriotic  one.  They  believe  that  Chinese  matters 
should  really  l)e  managed  by  the  Chinese  and  for  the  Chinese.  Little 
fault  can  be  foinid  with  them  for  having  this  feeling. 


GOLD  STANDAKD  IN  INTERNATIONAL  TRADE.         G3 

The  foreign  critics  of  the  Chinese  oHicials,  and  in  part  the  native 
critics  as  well,  are,  however,  of  the  opinion  that  their  chief  grievance 
is  of  a  ditl'erent  nature.  As  has  been  intimated  in  the  discussion  of 
the  tael  system,  and  of  the  methods  by  which  the  local  officials  obtain 
their  salary  through  fixing  special  official  rates  of  exchange  diti'erent 
from  the  commercial  rates,  the  system  of  securing  salaries  and  incomes 
in  indirect  ways  is  widely  developed  among  the  Chinese  officials. 
This  system  of  securing  profit  by  indirect  methods,  such  as  that 
indicated  by  commissions  or  other  sin^ilar  plans,  usually  classed  to- 
gether under  the  one  general  head  of  the  ""  squeeze,"  is  very  widely 
extended  even  outside  of  official  circles.  One's  servant,  for  example, 
receives  rather  low  wages,  but  he  expects  to  supplement  these  wages 
by  taking  a  small  commission  on  everything  that  he  buys  for  his 
employer.  If  he  goes  with  his  employer  to  make  a  visit  he  expects 
to  receive  fees  from  the  host.  The  commission  which  he  takes  is 
ordinarily  pretty  well  fixed  in  custom,  and,  as  a  rule,  he  takes  only  the 
customary  fee  and  doubtless  does  not  look  upon  the  matter  as  dis- 
honest. 

In  large  establishments,  such  as  the  legations  or  the  hotels,  when 
local  dealers  in  curios  or  other  goods  which  the  foreigners  or  well-to- 
do  Chinese  buy,  come  to  the  establishment  to  make  sales,  the  head  boy 
or  general  managing  servant  alwaj^s  expects  a  commission  on  all  pur- 
chases made.  This  commission  is  then  divided  in  an  agreed  upon 
percentage  with  the  other  servants.  When  the  commission  runs  from 
o  per  cent  up  to  as  high,  perhaps,  as  20  per  cent  in  the  case  of  sales 
made  at  hotels  frequented  by  foreigners,  it  can  be  seen  that  the  serv- 
ant's wages  are  often  decidedly  increased  through  the  "  squeeze." 
^Mien  the  official  makes  purchases  for  the  Government,  often  he  also 
expects  to  take  his  squeeze.  As  has  been  said,  when  he  collects  taxes 
he  collects  enough  so  that  the  squeeze  can  be  retained  after  the  taxes 
are  paid  into  the  central  treasury,  and  so  on. 

It  has  been  thought  by  many  that  the  chief  objection  of  the  officials 
to  the  introduction  of  a  uniform  monetary  system  came  from  the  fear 
lest  the  squeeze  system  would  thereby  be  seriousl^^  interfered  with. 
One  source  of  income  has  been  the  exchange,  money  being  paid  out, 
for  example,  in  one  kind  of  tael  and  charged  up  to  the  Government  in 
another  kind,  somewhat  heavier,  the  official  making  the  difference. 
For  example,  the  K'up'ing  tael  is  heavier  than  the  T'saoping  by  2  per 
cent.  The  Siangping  tael  is  2  per  cent  lighter  than  the  T'saoping, 
and  of  course  any  of  these  taels  are  considerably  heavier  than  a  Mexi- 
can dollar.  It  is  a  common  saying  in  Nanking  among  students  wdio 
receive  prizes  that  "  the  prizes  are  awarded  in  K'up'ing,  the  examin- 
ing official  pays  them  in  T'saoping.  the  minor  officials  distribute  them 
in  Siangping,  and  by  the  time  it  reaches  the  student  the  tael  has  be- 


64        GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

come  a  Mexican  dollar,  Avhich,  on  being  exchanged,  is  found  to  be 
bad." 

It  has  been  thought  also  that  Avhereas  now  the  taxes  are  levied  in 
taels,  of  which  the  rates  of  exchange  in  cash  can  be  made  to  vary 
almost  at  the  will  of  the  local  official,  this  source  of  profit  would  be 
taken  away  if  the  Government  were  to  make  one  uniform  coin,  either 
tael  or  dollar,  for  the  whole  Empire,  and  were  to  make  minor  coins  as 
decimal  parts  of  this,  of  which  the  value  would  be  maintained  uni- 
formerly  everywhere  in  the  Etripire.  It  is  believed  that  on  acocunt  of 
this  lessening  of  the  opportunity  for  squeeze  on  the  part  of  the  officials 
many  of  them  wnll  be  opposed  to  any  reform. 

This  objection  is  not  necessarily  valid.  In  the  first  place  there  are 
doubtless  many  individual  officials,  particularly  those  of  the  higher 
ranks,  who  make,  relatively  speaking,  little,  if  any  use  of  the  oppor- 
tunity for  profit  which  maj'  come  from  the  fluctuating  rates  of 
exchange.  It  is  these  higher  officials  whose  opinion  will,  in  the  long 
run,  be  decisive. 

In  the  second  place,  there  seems  to  be  no  especial  need  for  connect- 
ing the  two  subjects,  provided  the  Central  Government  takes  practical 
note  of  the  conditions  and  attempts  to  meet  the  issue  fairly.  As  a 
matter  of  fact  at  the  present  time,  where  this  form  of  the  squeeze  is 
employed,  the  taxes  are  actually  paid  by  the  people  in  copper  cash, 
although  they  may  be  levied  in  taels  or  in  fractions  of  a  tael.  If  the 
Government  were  to  take  the  position,  therefore,  that  the  customary 
taxes  as  paid  heretofore  in  cash  should,  for  the  time  being,  remain 
unchanged,  in  cash ;  that  the  local  official  should  return  to  the  central 
treasurer  the  same  amount  that  he  had  returned  heretofore,  and  that 
he  should  simply  account  for  the  balance  as  an  addition  to  his  own 
siilary,  there  would  be  practically  no  change  from  present  conditions 
beyond  a  new  item  in  the  matter  of  bookkeeping.  It  would,  of 
course,  be  desirable,  if  not  essential,  that  the  percentage  retained  for 
added  salary  should  be  made  practically  uniform  for  officials  of  the 
same  rank  in  the  same  sections  of  the  country.  That  might  result 
in  comparatively  slight  changes  in  the  rates  of  squeeze  in  different 
localities,  but  not  enough  materially  to  affect  the  situation.  If  the 
Government  were  to  take  up  the  question  openly  and  fairly,  with  an 
attempt  to  dispose  of  it  in  the  way  indicated,  there  can  be  little  doubt 
that  many  of  the  officials  would  be  glad  to  join  Avith  their  superiors 
in  the  reform.  The  system  of  squeeze  is  now,  generally  speaking,  not 
recognized  as  a  form  of  dishonesty.  On  the  other  hand,  it  is  recog- 
nized as  a  source  of  many  abuses,  and  the  more  intelligent,  more  ener- 
getic, and  more  patriotic  officials  would  prefer  to  have  the  matter 
regulated  and  made  uniform. 

So  far  as  the  officials  are  concerned,  then,  the  matter  may  be  summed 
up  by  saying  that  the  most  intelligent  ones,  and  particularly  those 


GOLD    STANDAKD    IN    INTEENATIUNAL    TKADE.  65 

most  conversant  with  the  rehitions  of  the  Government  with  other 
countries  and  with  international  trade,  believe  that  there  should  be  a 
inonetary  reform  which  should  give  a  uniformity  to  the  coins  through- 
out China,  and  which  preferabl}-  should  give  to  the  new  coins  a  fixed 
value  in  terms  of  gold. 

A  very  few,  while  believing  that  the  system  should  be  uniform, 
think  it  Avould  be  better  to  leave  it  on  the  silver  basis,  on  the  ground 
that  the  export  trade  would  be  encouraged  thereby,  and  that  it  would 
be  equally  as  well,  if  not  better,  for  Chinese  interests.  It  should  be 
noted,  however,  that  many  of  this  class  have  changed  their  opinion  on 
further  study  of  the  question ;  and  there  can  be  little  doubt  that  the 
trend  of  discussion  is  in  the  direction  of  the  gold  standard. 

A  goodly  number  of  them,  from  their  natural  desire  to  move  slowly 
and  to  change  existing  conditions  as  little  as  possible,  would  favor 
the  adoption  of  a  uniform  silver  standard  first  with -the  hope  that  it 
might  ultimately  go  to  the  gold  standard.  Many  of  this  class  also 
seem  to  have  been  converted  to  the  idea  that  it  would  be  better  to 
begin  with  the  gold  standard. 

A  comparatively  large  class  of  the  lower  officials  probably  would 
look  askance  at  a  reform  which  they  feared  would  deprive  them  of 
their  squeeze.  This  class,  however,  is  not  made  uj)  of  the  most  intel- 
ligent and  most  influential  officials,  and  the  objection  could  probably 
be  fairh^  met.  Of  greater  importance,  however,  is  the  fear  of  some 
of  the  higher  officials  that  if  the  Central  Government  took  complete 
charge  of  a  uniform  monetary  s^^stem  it  would  de])rive  the  viceroys 
and  governors  in  the  different  provinces  of  the  ])rofits  which  they  now 
derive  from  their  sejDarate  mints,  and  that  the  Central  Government 
would  not  make  proper  compensation  for  this  jirofit  which  it  had 
taken.  The  solution  to  this  difficulty,  which  is  a  real  one,  is,  of  course, 
that  the  Central  Government  deal  fairly,  not  to  say  liberally,  with 
the  viceroy's  when  it  takes  control  of  their  mints. 

GPIINESE  BUSINESS  MEN. 

For  x\mericans  who  are  not  accustomed  to  conditions  in  oriental 
countries,  where  the  form  of  government  is  somewhat  despotic,  it  is 
important  to  keep  in  mind  that  the  Government  officials  and  the  busi- 
ness men  have  practically  no  personal  association  one  with  the  other. 
The  official  stands  socially  in  a  separate  class  from  the  business  man, 
and  has  nothing  whatever  to  do  with  him  excepting  in  connection 
with  tax  collecting,  with  work  in  the  courts,  or  in  some  other  official 
wa}'.  He  looks  down  upon  the  business  man  as  one  distinctively 
lower  in  the  social  scale  than  himself,  and  it  is  to  be  feared,  in  too 
many  instances,  as  one  that  may  perhaps  be  used  as  a  source  of  profit. 

The  business  man,  on  the  other  hand,  who  in  his  business  dealings, 
S.  Doc.  128,  58-3 5 


66        GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

as  we  have  seen  in  connection  wiih  the  discussion  of  banking,  is,  as  a 
rule,  honorable,  scrupulously  careful  with  reference  to  living  up  to 
his  contracts,  and  inclined  to  do  business  in  accordance  with  the 
customs  of  his  trade,  stands  in  awe  and  often  in  well-founded  fear  of 
the  official.  He  knows  that  if  he  opposes  the  official  too  openly  he  is 
likely  to  be  made  to  suifer  for  it.  In  consequence,  there  is  no  sympa- 
thy between  the  classes.  The  officials  are  not  inclined  to  consult  the 
business  men  with  reference  to  a  matter  so  important  to  trade  as  is 
the  reform  of  the  monetary  system,  while  the  business  men,  on  the 
other  hand,  are  quite  of  the  opinion  that  if  the  officials  attempt  to 
carry  out  any  reform  of  the  monetary  system  themselves  they  will 
do  it  with  an  eye  single  to  their  own  interests,  and  not  to  the  interests 
of  business.  It  is  important,  therefore,  to  note  the  attitude  of  the 
business  men  toward  the  reform  itself,  and  then  to  consider  their 
opinions  as  to  its  practicability. 

The  business  men  have  little  confidence  in  the  good  faith  of  the 
Government,  or  in  the  ability  of  the  Government  officials.  They 
do  not  hesitate  to  cite  instances  where  the  Government  has  practically 
repudiated  its  bonds,  when  those  bonds  were  taken  by  the  Chinese 
business  men,  although  the  Government  has  regularly  paid  its  obliga- 
tions due  to  foreigners.  Even  the  Chinese  officials  themselves,  at 
times,  make  this  distinction  between  treatment  of  the  natives  and 
treatment  of  the  foreigners,  being  much  more  careful  not  to  offend 
the  foreigners. 

(a)  Of  the  numerous  Chinese  business  men  who  were  consulted 
concerning  the  monetary  reform,  a  feAV,  and  only  a  few,  were  of  the 
opinion  that  it  would  be  wiser  for  China  to  remain  on  the  silver 
standard.  Those  thought  that  the  silver  standard,  especially  if  silver 
were  depreciating  in  value,  would  tend  to  stimulate  the  export  trade, 
and  in  that  way  to  further  Chinese  interests.  They  were,  however, 
entirely  ready  to  listen  to  argument  on  the  question,  and  many  of 
them  certainly  it  would  not  be  difficult  to  convince  that  the  fixed 
rate  of  exchange  would  be  preferable.  Their  arguments  are  answered 
in  Appendixes  xV,  I,  II,  and  III,  1. 

(h)  A  few  wished  to  retain  the  silver  standard  for  speculative 
purposes.  They  say  that  they  like  the  risks  of  business;  that  busi- 
ness is  more  exciting  Avhen  exchange  is  fluctuating;  that  they  like 
to  take  the  chances  of  making  high  profits  from  exchange ;  and  that 
they  are  willing  to  take  the  losses  that  come  when  they  make  mistakes. 

Some  of  those,  however,  while  saying  this  as  regards  their  indi- 
vidual preference,  were  willing  to  add  that  it  was  much  better  for 
business  as  a  whole  to  have  the  rate  of  exchange  stable;  that  they 
thought  the  interests  of  the  coimtry  would  be  furtliered  by  the 
stable  rate,  and  that  the  Government  ought  to  consider  the  interests 


GOLD    STANDARD    IN    INTERNATIONAL    TRADP: 


67 


of  tlio  whole  rather  thuii  the  interests  of  the  few  wlio  wouhl  giihi  hy 
specLihitioii. 

((•)  A  hir^e  inajoritA',  however,  of  the  busmess  men  who  were 
consulted,  and  particularly  the  most  important  business  men,  such  as, 
for  example,  the  President  of  the  Bankers'  Guild  in  Shani^hai,  the 
President  of  the  Chinese  Chamber  of  Connnerce  in  Hongkong,  and 
olht^r  important  bankers  and  merchants,  were  decidedly  of  the  opin- 
ion that  a  stable  rate  of  exchange  was  best,  and  that  it  would  be  best 
for  the  (lovcrnment,  in  the  reform  of  its  monetary  sj'stem,  to  give 
to  the  new  coins  from  the  beginning  a  fixed  value  in  terms  of  gold. 

These  business  men  Avere  very  intelligent  and  seemed  to  have  little 
difficulty  in  grasping  clearly  the  points  of  the  plans  of  the  American 
Commission  Avhen  they  were  explained  to  them.  Most  of  them,  of 
course,  having  been  trained  in  the  present  Chinese  system,  and  not 
having  studied  thoroughly  monetary  principles,  did  not  know  about 
the  plan  beforehand.  They,  however,  grasped  it  very  readily  when 
it  was  explained,  and  with  rare  if  any  exceptions,  when  they  under- 
stood the  system,  they  said  that  they  would  favor  it,  and  that  the 
Government  would  do  well  to  adopt  it. 

With  reference  to  the  banking  interests  their  opinions  were  particu- 
larly interesting  and  valuable.  As  regards  the  exchange  banlvcrs, 
whose  chief  profits  consisted  in  transferring  money  and  credits  within 
the  Empire  itself,  it  was  said  that  the  reform  would  affect  their  inter- 
ests comparatively  little  either  w\ay.  They  took  their  pay  regularly 
in  the  form  of  a  commission  on  the  exchange,  and  they  could  get  their 
pay  as  readily  under  one  system  as  under  another. 

Some  of  the  large  loan  bankers  said  that  they  would  decidedly  pre- 
fer the  fixed  rate  of  exchange,  because  there  would  be  fcAver  bank- 
ruptcies, and.  in  consequence,  they  would  lose  less  under  that  system 
than  they  do  now.     The  regular  rates  of  interest  need  not  be  changed. 

They  thought  the  small  cash  shops,  whose  i3rofits  now  come  practi- 
cally entirely  from  exchanging  from  one  form  of  money  to  another, 
would  be  opposed.  Both  they  and  the  higher  officials  said,  however, 
that  the  cash  shops  w^ere  small  affairs,  dependent  largely  upon  the 
more  important  bankers;  and  that,  if  the  bankers  w^ere  in  favor  of  the 
reform,  the  object  of  the  cash  shop  keepers  would  be  of  slight  con- 
sequence. 

A  prominent  member  of  the  great  guild  of  the  Shan-si  bankers 
expressed  himself  as  very  strongly  in  favor  of  the  reform  and  decidedly 
in  favor  of  the  plan  of  the  American  Commission.  When  he  was 
asked  whether  he  thought  the  guild  as  a  whole  could  be  persuaded  to 
cast  its  influence  in  favor  of  the  reform  and  to  aid  the  Government  in 
.  carrying  it  out,  he  said  that  he  saw^  no  reason  why  the  guild  should 
not  be  willing  to  aid  in  the  matter.  It  was  his  opinion  that  if  the 
Government  would  undertake  the  reform,  and  if  the  Controller  or 


68  GOLD    STANDARD    IN    INTERNATIONAL    TRADE, 

other  persons  who  understood  the  subject  thoroughly  and  some  of  the 
higher  officials  who  were  in  general  charge  of  the  system  shoidd  visit 
the  heads  of  the  guild  and  explain  the  matter  to  them  thoroughly, 
arrangements  could  in  all  probability  be  made  with  them  for  giving 
their  hearty  support  and  assistance  in  carrying  the  system  into  effect. 

RELATIONS   OF   OFFICIALS    AND    BUSINESS    MEN. 

The  difficulties  coming  from  the  lack  of  sympathy  and  connminity 
of  interests  between  the  different  classes  can  be  best  explained,  per- 
haps, by  giving  the  opinions  of  some  business  men  regarding  the 
establishment  of  a  national  bank  for  China,  and  their  readiness  to 
subscribe  for  its  stock.  This  question  was  discussed  wdth  representa- 
tives of  more  than  sixty  guilds,  including  representatives  of  impor- 
tant banks  and  bankers'  guilds  in  Canton,  Shanghai,  Peking,  and 
felsewdiere.  The  opinion  was  generally  expressed  that  in  the  carrying 
out  of  such  a  reform  a  national  bank  for  China  would  be  of  great 
assistance.  The  business  men  said  also  that  they  had  considerable 
money  which  they  Avould  be  willing  to  invest  in  such  a  bank  under 
proper  conditions.  With  substantial  unanimity,  •  however,  they 
agreed  that  the  bank  Avould  fail  if  its  management  were  left  in  the 
hands  of  the  officials,  and  that  in  consequence  they  would  be  entirely 
unwilling  to  make  any  subscription  unless  the  management  should 
be  confided  exclusively  to  business  men  with  one  or  more  foreigners 
as  managers. 

'VMien  asked  whether  they  would  object  to  the  Government  laying- 
down  the  general  lines  of  policy  for  the  bank,  in  order  that  it  might 
be  sure  that  the  Government's  interests  would  be  subserved,  they  re- 
plied that  they  had  not  the  slightest  objection  to  living  up  to  proper, 
well-understood  regulations  which  should  be  made  beforehand  by  the 
Government,  such  as  are  connnon  in  other  countries;  that,  further- 
more, they  would  not  object  to  the  Government  appointing  inspectors 
who  might  follow  every  action  of  the  bank,  in  order  to  see  that  the 
regulations  were  fully  carried  out.  On  the  other  hand,  they  would 
not  subscribe  money  or  take  any  part  in  the  management  of  the  bank 
if  a  high  Government  official  Avere  to  be  a  member  of  the  board  of 
directors,  so  that  he  could  hear  the  discussions  and  take  an  active  part, 
in  determining  the  policy  of  the  bank.  They  asserted  that  their  rea- 
son for  taking  this  position  was  that  they  could  not  act  freely  and  in 
accordance  with  their  best  judgment  if  any  high  Government  official 
was  present. 

As  one  man  expressed  it,  if  one  director  who  was  a  Government 
official  should  say  "  go  east,"  and  say  six  other  members  of  the  board, 
who  are  not  officials,  should  want  to  go  west,  the  whole  board  would 
go  east.     The  one  vote  of  the  official  would  deteraiine  the  action  of  the 


OOLD   STANDARD    IN    INTERNATIONAL    TUADE.  ()9 

l)ank  agfainsl  tlio  unanimous  opinion  of  the  othor  moinbors  of  the 
board.  Thoy  would  ultimately  vote  with  him.  The  reason  for  this, 
he  said,  is  that  the  Government  official,  if  his  policy  were  not  fol- 
lowed, mi<>:ht  A'ery  readily  make  complaints  to  the  Government 
authorities  against  the  other  members,  have  them  arrested,  their 
property  confiscated,  and  themselves  perhaps  imprisoned  without  any 
fault  of  their  own.  They  could  not,  they  said,  take  such  risks;  they 
were  entirely  willing  to  live  up  to  the  law,  and  for  the  Government  to 
take  pains  to  see  that  ihey  did  live  up  to  the  law;  but  they  could  not 
and  would  not  attempt  to  join  in  an  important  business  with  a  high 
(lovernment  official. 

One  reason  also  why  they  insist  upon  having  a  foreign  manager 
equal  in  power  to  a  native  manager  is  for  similar  reasons.  If  a 
high  Chinese  official  were  to  demand  a  loan  from  the  bank,  a  native 
manager  Avould  not  dare  refuse  him  alone.  If,  however,  it  required 
also  the  consent  of  the  foreign  manager  to  carry  out  the  transaction, 
they  could  count  upon  the  foreigner  l)eing  independent,  inasmuch 
as  he  and  his  property  would  not  be  subject  to  seizure  and  confiscation 
on  the  complaint  of  the  Government  official.  The  loans,  therefore, 
to  the  officials  from  a  national  bank  with  a  foreign  manager  could  be 
made  on  a  strictly  business  basis,  as  was  proper.  Without  a  foreign 
manager  this  would  not  be  the  case. 

When  these  opinions  were  reported  to  the  high  Government  offi- 
cials, most  of  them  stated  that  it  was  unfortunate  that  the  business 
men  were  not  better  acquainted  with  the  higher  Government  officials 
and  did  not  understand  them  better.  They  would  then  trust  them 
more  fully.  They  recognized  the  fact,  however,  that  this  lack  of 
confidence  did  exist,  and  said  that  the  Government  must  get  the  con- 
fidence of  the  business  men  before  the  system  could  be  a  suc- 
cess. The  business  men  say  that  this  confidence  can  be  secured  only 
by  a  proper  law  which  shall  give  sufficient  power  to  business  men 
and  foreign  experts,  and  which  the  Government  will  itself  live  up  to 
carefully;  that  the  Government  can  secure  this  confidence  in  no 
other  way.  Some  of  the  high  officials,  when  talking  alone  and  pri- 
vately with  the  American  commissioner,  said  that  the  business  men 
were  entirely  right;  that  it  would  not  be  safe  for  them  to  risk  their 
money  except  under  the  conditions  which  they  had  themselves  laid 
down,  and  that  any  person  who  knew  thoroughly  the  conditions  in 
China  must  agree  with  the  Chinese  business  men. 

Not  only  do  the  higher  important  business  men  refuse  to  unite  with 
the  Government  officials  in  business,  as  intimated  above,  but,  speaking 
generally,  the  common  people  are  also  afraid  of  the  magistrates,  and 
distrust  them  in  their  dealings.  The  statement  was  made  frequently, 
in  fact  almost  or  quite  universally,  bj^  not  only  business  men,  but 
also  by  the  higher  officials  themselves,  that  it  would  be  much  better, 


70  GOLD    STANDARD    IN    INTERNATIONAL   TRADE. 

if  it  could  be  so  arranged,  to  introduce  a  new  coin  for  use  among  the 
people  through  the  banks  and  business  men  instead  of  through  the 
officials.  The  people,  it  was  said,  mistrust  the  officials  and  would 
hesitate  to  accept  a  new  kind  of  money  from  them,  whereas  they 
would  not  hesitate  to  deal  with  the  native  bankers  and  business  men 
and  would  accept  a  new  kind  of  money  from  them  without  hesitation, 
if  they  were  sure  regarding  its  value. 

THE   COMMON   PEOPLE. 

It  has  been  intimated  elsewhere  that  the  common  people  in  China 
are  so  accustomed  to  trading  in  different  kinds  of  currency — taels  of 
various  weights,  cash  of  various  kinds,  and  notes  of  different  values — 
that  they  would  probably  adopt  a  new  good  system  as  intelligently 
and  use  it  from  the  beginning  with  as  few  mistakes  as  would  any  other 
people.  It  should  not  be  thought,  as  in  the  case  sometimes,  that 
people  in  general  need  to  understand  a  monetary  system  in  order  to 
use  it  properly.  Probably  no  people  understand  fully  their  own  sys- 
tem. That  is  not  necessary.  The  average  man  needs  to  be  able  to 
recognize  his  country's  money,  and  the  relative  value  of  one  piece  to 
another,  nothing  more  from  the  business  point  of  view.  A  few  men, 
those  managing  the  system,  need  to  understand  the  principles  of 
money,  to  know  the  amount  on  hand  in  the  treasury,  the  approximate 
circulation,  the  relations  with  the  banks,  etc.,  but  there  is  no  reason 
why  the  masses  should  understand  all  these  things  in  order  to  do  busi- 
ness. The  Chinese  will  understand  as  readily  as  Americans  or 
Europeans,  probably  more  readily.     Nothing  better  is  needed. 

THE  DEALINGS  WITH  THE  GOVERNMENT. 

As  has  been  explained  in  the  Commissioner's  report,  page  16,  when 
the  special  commissioner  for  China  reached  Peking,  he  was  informed 
that  a  special  monetary  commission  had  been  appointed  to  deal  with 
the  whole  subject  of  monetary  reform.  The  members  of  the  commis- 
sion are  the  following:  The  Prince  of  Ch'ing,  Chii  Hung  Chi, 
Natung,  Wang  Wen  Shao,  Jung  Ching,  Lu  Chuan  Lin,  Ching  Feng, 
Chen  Pau  Jui,  Tseng  Chung,  Tai  Hung  Tzu.  Besides  these  mem- 
bers, partly  ex  officio,  a  special  committee  consisting  of  the  following 
executive  and  consulting  officers  had  been  selected  to  take  up  the  sub- 
ject for  detailed  discussion:  Ch'en  Pi,  Hsii  Shih  Ch'ang,  Chang  Yiin- 
yen,  Jui  Feng,  Lei  Pu  T'ung,  Wang  Ching  Mu,  KShao  Yen.  The 
president  of  the  whole  connnission,  who  is  also  the  actual  head  of  the 
Government  under  the  Emperor,  was  the  Prince  of  Ch'ing.  It  is  he 
who  would,  of  necessity,  present  in  behalf  of  the  grand  council  any 
meiuoi-ial  to  the  Eniperor  or  any  decree  for  promulgation  as  law.  He 
stated  that  this  special  committee  would  consider  fully  the  sugges- 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  71 

tions  of  the  American  C\)iiiinission,  and  wonld  tluMi  talk  thcni  over 
witli  the  lii<>her  officials,  more  particularly  with  the  two  presidents 
of  the  Board  of  Kevenne,  and  with  His  Excellency  Natnng,  who  had 
been  sent  the  preceding  year  as  special  commissioner  to  Japan  to 
study  its  monetary  system,  and  who,  in  consequence,  besides  beino;  a 
man  of  oreat  al)ility,  had  i)resumabl3'  more  special  knowledge  of  the 
subject  than  the  presidents  of  the  Board  of  Revenue.  The  sj)ecial 
connnittee  had  no  authority  beyond  that  of  discussion  and  rejiort, 
although,  of  course,  its  members  were  at  liberty  to  express  their 
individual  opinions  and  often  aided  the  discussion  very  much  by  so 
doing.  The  opinion  of  the  presidents  of  the  Board  of  Revenue  and 
Xatung,  so  the  Prince  said,  would  be  practically  decisive,  in  all  i)r()b- 
ability,  as  he  would  expect  to  accept  their  advice. 

Discussions  Avith  this  special  committee  and -occasional  meetings 
with  the  three  higher  officials  mentioned  above  were  carried  on  several 
times  a  week  from  June  25  until  August  26,  when  the  American  com- 
missioner was  compelled  to  leave  for  home.  As  has  been  explained 
in  the  report,  the  commissioner  was  treated  with  the  greatest  courtesy 
by  all  these  officials  throughout.  At  first  it  was  evident  that  both 
some  of  these  officials  and  the  officials  elsewhere  throughout  the  coun- 
try, who  were  visited  by  the  commissioner,  had  some  suspicions  as  to 
the  worthiness  of  the  motives  of  the  American  Government  in  pre- 
senting their  plan,  although  those  best  informed,  who  knew  that  the 
American  commissioner  was  there  as  the  result  of  the  invitation  issued 
by  the  Chinese  Government,  naturally  had  fewer  suspicions.  As  the 
meetings  went  on  and  the  plans  were  more  and  more  developed,  and 
as  it  became  evident  that  the  Government  of  the  United  States  Avas 
asking  for  no  special  advantages,  and  that  the  benefits  to  it  were 
expected  to  come  only  through  the  improvement  of  conditions  in 
China,  these  suspicions  seemed  to  vanish  entirely,  and  the  later  meet- 
ings were  characterized  by  the  greatest  cordialit}^  and  personal  sym- 
pathy throughout.  The  new  Chinese  President  of  the  Board  of 
Revenue,  His  Excellency  Chao.  as  explained  before,  took  the  greatest 
interest  in  the  subject,  and  apparently  still  continues  his  interest  in 
the  matter.  It  is  believed  that  a  considerable  number  of  the  special 
commission,  if  not  indeed  all  of  them,  believe  that  the  plans  of  the 
American  Commission  are  wise  and  practicable,  and  that  they  can  be 
f-arried  into  effect  as  soon  as  a  sufficient  number  of  the  viceroys  and 
other  influential  peoj)le  sliall  have  studied  the  matter  enough  to  see  its 
-igniiicance.  Of  course,  as  the  members  had  no  right  to  express  any 
official  opinion,  and  as  they  could  not  take  any  vote  on  the  matter, 
their  opinions  can  be  gauged  only  from  the  tone  of  the  discussions. 
Thei-e  is  no  reason,  however,  to  believe  that  in  this  way  their  opinions 
were  not  gauged  with  a  reasonable  degree  of  accuracy. 


72  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

Appendix  A  II  contains,  in  outline,  the  substance  of  most  of  the  dis- 
cussions which  were  held  with  this  Commission,  although  naturally 
the  discussions  were  much  fuller  than  would  be  indicated  by  the  out- 
line, and  it  is  not  possible,  of  course,  here  to  present  the  arguments 
and  questions  of  the  Chinese  members  of  the  Commission. 

As  has  already  been  explained  in  the  repoi't,  the  results  are,  oh  the 
whole,  fairly  satisfactory.  Many  of  the  higher  officials  and  the 
Prince  of  Ch'ing  express  ojiinions  strongly  in  favor  of  the  American 
plans. 

On  the  whole,  the  American  Commissioner  feels,  as  the  result  of 
many  assurances  from  l)oth  foreigners  and  Chinese  officials,  that  the 
Avork  in  China  has  been  productive  of  very  good  results,  and  that, 
even  if  the  Chinese  Government  does  not  immediately  take  up  the  sys- 
tem proposed  by  ther  American  Commission  (a  result  indeed  that  is 
hardly  to  be  expected),  it  has,  nevertheless,  been  saved  from  a  good 
many  mistakes  which  it  was  clearly  about  to  make  befoi-ehand,  and 
that  a  system  quite  similar  to  that  proposed  by  the  American  Com- 
mission will  in  due  course  of  time  be  adopted.  Indeed,  since  parts 
of  this  report  have  been  in  the  printers'  hands  word  has  been  received 
by  the  American  Commissioner  direct  from  officials  who  are  among 
the  most  influential  in  China  that,  in  spite  of  discouraging  delays  and 
even  some  discouraging  indications,  the  persons  favoring  the  reform 
may  be  confident  that  the  proper  plans  will  be  carried  through  ulti- 
mately, and  that  they  need  simpl}^  to  cultivate  the  patience  which  is 
often  required  in  dealing  with  conditions  in  China  where,  owing  to 
the  looser  form  of  government  organization,  any  great  changes  must 
be  made  with  oreat  deliberation. 


APPENDIXES. 


H-i 


ArPKNDTX    A. 

CHINA. 

I.  MEMORANDA  ON  A  NEW  MONETARY  SYSTEM  FOR  CHINA. 

By  ./rrcniidh    W.   Jenkfi,  Vommisfiioner  in  China. 


I.   NOTE   FROM    THE    CHINESE  CHARGE   D'AFFAIRES    TO    THE   SEC- 
RETARY  OF   STATE   OF   THE    UNITED   STATES   OF  AMERICA. 

Mr.  Slien  to  Mr.  Hay. 

No.  2TT.]  Chinese  Legation, 

Wnshmr/fon,  January  2'2.,  J 903. 

Sir  :  Keferring  to  my  note  No.  27G,  of  the  lOtli  instant,  in  Avliich  T 
infoi-med  you  that  I  had  received  instructions  from  the  Imperial  (xov- 
ernment  reb:itive  to  a  proposed  ]3hin  looking  toward  an  international 
concert  of  action  bearing  upon  the  monetary  question,  I  have  the 
honor  to  submit  to  you  the  accompanying  memorandum  containing 
the  views  of  my  GoA'ernment  relating  to  the  above-mentioned  subject. 

It  is  the  confident  hope  of  the  Imperial  Government  that  the  sub- 
ject-matter of  its  memorandum  may  receive  the  careful  consideration 
of  the  Government  of  the  United  States,  and  that  such  steps  may  be 
taken  as  it  may  deem  jiroper  toward  bringing  about  the  desired  end, 
to  the  mutual  benefit  of  all  concerned. 

Accept,  sir,  etc.,  •  Shen  Tung. 


[Inclosiire.] 
MEMORANDUM. 

The  serious  results  which  are  threatened  by  the  recent  fluctuations 
in  the  value  of  silver  bidlion  to  the  commerce,  both  of  gold  and  silver 
standard  countries,  have  induced  the  Chinese  Imperial  Government, 
acting  in  concert  with  the  Mexican  Government,  to  ask  the  cooper- 
ation of  the  United  States  in  seeking  a  remedy  for  these  conditions 
for  the  mutual  benefit  of  all  concerned.  Safe  and  profitable  trade 
between  any  two  countries  is  dependent  to  a  considerable  degree 
upon  relative  stability  in  the  value  of  their  currencies.  This  stability 
is  destroyed  in  the  trade  between  a  gold-standard  country,  like  the 
United  States,  and  a  silver  country,  like  Chijia,  when  the  variations 

75 


70        GOLD  STANDARD  IN  IKTERNATlONAL  TRADK. 

in  the  gold  value  of  silver,  as  was  the  case  during  the  year  1902, 
reached  nearly  10  cents  an  ounce  in  gold  in  a  single  year,  or  nearly 
20  per  cent  upon  the  price  of  silver  bullion. 

The  problem  of  securing  relative  stability  of  exchange  between  the 
gold  and  silver  countries  is  one  whose  importance  is  not  limited  to 
silver  countries,  but  comes  home  with  force  to  all  those  gold-standard 
countries  which  are  seeking  markets  for  their  products  in  silver  coun- 
tries and  are  seeking  the  extension  of  their  trade  in  the  Orient.  The 
im])ortance  of  this  trade  is  indicated  in  some  measure  by  the  following 
table  of  the  imports  into  certain  silver-using  countries  for  the  latest 
year  for  which  data  is  obtainable,  based  in  some  cases  upon  official 
figures,  and  in  others  upon  those  presented  in  the  Statesman's  Year- 
book for  the  year  1002,  reduced  to  round  figures  in  American  gold 
coin : 

Imports  of  certain  si1ver-usin(/  countries. 

China    : $190,9.34,342 

Mexico    05,  08.3,  4.51 

Philippine  Islands 32, 141,  842 

The  Straits  Settlements 150,000,000 

Federated    Malay    States 18,000,000 

Indo-China    35,  750.  000 

Cochin    China 24,  000,  000 

Tonking    12,300.000 

Slam    12,  600,  000 

Korea    5,  ,500,  000 

Bolivia    3,  300,  000 

Colombia    11,  08.3,  028 

Guatemala  —  1,  521,  900 

Honduras 1,074,0.50 

Nicaragua 3,  500,  000 

Paraguay    1,838,710 

Total   574,  G27,  323 

This  large  volume  of  imports  into  the  silver  countries,  exceeding  the 
entire  annual  import  trade  of  the  United  States,  as  recently  as  1879, 
comes  almost  exclusiveh^  from  the  gold-standard  countries  which  are 
engaged  in  the  manufacture  of  finished  goods  for  the  world's  markets 
and  are  profoundly  interested  in  the  extension  of  those  markets.  The 
table  given  does  not  include  British  India  and  several  silver  countries 
in  South  America  which  might  become  parties  to  an  engagement  for 
giving  stability  to  the  relative  value  of  the  money  of  gold  and  silver 
countries. 

Tt  will  be  noted  that  the  largest  amount  of  imports  in  the  table 
given  above  is  credited  to  the  (Chinese  Empire.  This  large  volume  of 
trade  is  threatened  in  the  present  state  of  the  Chinese  fiscal  and  cur- 
rency systems  with  a  decline,  the  limit  of  which  no  one  could  foresee. 
The  heavy  indemnity  imi)osed  by  certain  of  the  powers  upon  the 
Chinese  (lovermnent  has  led  to  large  offerings  of  silver  on  the  Chi- 
nese market  and  has  diminished  the  power  of  that  country  to  i)urchase 
foreign  goods  to  a  point  which  tlireatens  to  materially  reduce  the 
existing  exi)ort  trade  to  China  fi-om  the  United  States,  Great  Britain, 
France,  (Jermany,  and  other  countries. 

'['he  foreign  trade  of  China,  while  standing  at  the  head  of  the  above 
ta])le  in  the  order  of  magnitude,  is  small  at  present  in  proportion  to 
the  j^iojuihition  and  ivsources  of  the  Chinese  Empire.     The  exports 


GOLD    STANDARD    IN    1 NTKUNATIONAL    TRADE.  77 

from  the  Uiiitod  States  to  China  have  iiiuUi])lie(l  inaiiy  fokl  within 
twelve  years,  and  now  exceed  24  million  dollars.  The  present  volume 
of  imports  of  merchandise  into  China,  however,  amounts  to  only 
about  50  cents  per  capita  in  go\d,  and  affords  but  a  slight  measure  of 
w'hat  the  trade  of  China  might  become  if  expanded  in  the  future  as 
rapidly  as  even  that  of  Japan,  which  has  advanced  in  ten  years  from 
about  $1.25  to  nearly  $3  per  capita.  An  import  trade  of  $3  per  cap- 
ita for  the  Empire  of  China,  with  its  nearly  400  million  people,  would 
represent  the  enormous  sum  of  $1,200,000,000,  or  one-third  more  than 
the  largest  amount  ever  attained  by  the  import  trade  of  the  United 
States.  The  encouragement  of  a  connnerce  so  important  as  this  seems 
to  the  Chinese  Tm])erial  Government  to  be  worthy  of  the  most  serious 
consick^-ation  of  tlie  Western  powers.  It  would  afford  an  outlet  for 
the  produce  of  the  labor  of  many  thousands  of  Avorkers  of  Euro])e 
and  America,  and  employment  for  many  millions  of  the  capital  of 
those  nations,  and  would  dot  the  Pacific  and  Indian  oceans  with  the 
flags  of  a  carrying  trade  as  large  as  that  now  required  in  the  entire 
commerce  between  Europe  and  the  United  States. 

While  a  readjustment  of  the  currency  of  China  upon  a  stable  rela- 
tionship with  that  of  the  gold-standard  countries  would  not  in  itself, 
perhaps,  accomplish  so  tremendous  a  revolution  as  would  be  involved 
in  the  creation  of  a  trade  of  more  than  a  thousand  ndllions,  yet  it 
would  be  one  of  several  steps  in  that  direction  wdiich  Avould  con- 
tribute greatly  to  accelerate  an  event  of  such  paramount  importance 
to  the  capitalists  and  the  producing  masses  of  the  Old  and  New 
Worlds.  The  necessity  is  becoming  more  and  more  keenly  felt  by 
American  and  European  manufacturers  for  the  opening  of  new  and 
the  extension  of  already  existing  markets  in  every  direction  for  the 
absorption  of  their  goods,  in  order  that  means  may  be  found  for 
relieving  overproduction  and  affording  profitable  returns  to  the  in- 
vestment of  capital.  China,  with  her  immense  population  and  conse- 
quently large  potential  capacity  for  absorbing  foreign  products, 
offers  a  most  important  field  for  American  and  European  manufac- 
tures, the  ready  absorption  of  wdiich  would  tend  to  relieve  overpro- 
duction and  contribute  materially  to  the  prosperity  of  the  manufac- 
turing nations. 

If  results  such  as  these  are  within  the  range  of  the  influence  of  a 
reorganization  of  the  monetary  system  of  China,  in  harmony  with 
the  system  of  other  jjowers  where  silver  is  the  principal  money  in  use, 
it  is  evident  that  the  Chinese  Imperial  Government  acts  from  no 
narrow  and  selfish  motive  in  asking  the  United  States  and  the  Ilepub- 
lic  of  Mexico  to  join  her  in  seeking  an  international  arrangement  for 
securing  greater  fixity  of  relationship  between  the  moneys  of  the 
gold  and  silver  countries. 

Questions  of  finance  and  economics  should  be  considered  in  all 
their  bearings,  with  due  attention  to  their  far-reaching  effects,  and  not 
merely  upon  results  which  bring  immediate  benefit.  Important  as 
are  the  indemnity  payments  to  the  several  powers,  and  ready  as  China 
is  to  meet  them  to  the  best  of  her  ability,  the}'  represent  but  a  trifling 
proportion  of  the  benefits  which  may  be  derived  by  the  Western  pow- 
ers from  a  policy  which  would  give  to  China  a  permanent  uniform 
monetary  system,  and  make  her  a  wide  market  for  the  products  of 
American  and  European  factories  and  workshops. 


78        GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

It  is  Avith  a  view  to  finding  a  remedy  for  the  monetary  causes  which 
threaten  to  retard  this  development,  and  to  preserve  the  export  and 
carrying  trade  of  the  leading  manufacturing  nations  to  the  silver 
countries,  so  that  trade  may  not  lose  its  healthy  activity,  and  confi- 
dence may  be  restored  to  investors  and  manufacturers,  that  the  cooper- 
ation of  the  United  States  is  asked  in  representations  to  other  lead- 
ing powers  in  favor  of  international  concert  of  action  on  this  subject. 
The  Government  of  China  does  not  seek  the  restoration  of  the  free 
coinage  of  silver  by  either  the  gold  or  silver  using  nations.  It  is 
recognized  b}^  this  Government  that  bimetallism  in  the  sense  of  tli(i 
free  coinage  of  both  metals  is  a  policy  which  has  been  definitely  dis- 
carded by  leading  powers  of  Europe  and  by  the  United  States,  and 
that  it  would  be  futile  to  propose  its  restoration. 

It  is,  therefore,  not  the  expectation  nor  the  wish  of  this  Govern- 
ment that  the  gold-standard  countries  should  take  any  action  tending 
to  impair  their  monetary  standard  or  to  make  material  changes  in 
their  mon.etary  systems.  It  is  desired  that  the  governments  of  gold 
countries  having  dependencies  where  silver  is  used  and  the  govern- 
ments of  silver  countries  shall  cooperate  in  formulating  some  plan  for 
establishing  a  definite  relationship  between  their  gold  and  silver 
moneys,  and  shall  take  proper  measures  to  maintain  such  relation- 
ship. One  such  plan,  it  is  rei^orted,  has  already  been  proposed  in 
both  Houses  of  the  Congress  of  the  United  States  with  reference  to 
the  Philippine  Islands.  It  is  this  and  other  plans  designed  to  accom- 
plish the  same  end  which  the  Government  of  China  would  be  glad  to 
have  considered  by  the  ITnited  States  and  other  governments,  with  the 
view  to  the  adoption  of  the  best  attainable  monetary  arrangement  by 
those  countries  which  are  not  prepared  under  existing  conditions  to 
adopt  a  currency  system  involving  the  general  use  of  gold  coins. 

The  cooperation  of  the  United  States  with  the  Chinese  Imperial 
Government  and  with  the  Republic  of  Mexico  in  presenting  this 
subject  to  other  governments  would,  in  the  opinion  of  this  Govern- 
ment, aid  greatly  in  securing  a  prompt  and  satisfactory  solution  of 
an  economic  problem  Avhich  threatens  the  ruin  of  the  silver-using 
countries  on  the  one  hand,  in  the  vain  effort  to  meet  increasing 
gold  obligations  abroad,  and  which  threatens  also  the  commercial 
prosperity  of  the  gold-using  countries  by  destroying  the  purchasing 
power  of  their  customers.  It  Avould,  Ave  believe,  contribute  materially 
to  the  permanent  satisfactory  settlement  of  this  problem  if  Great 
Britain  and  France,  Avith  their  important  colonial  possessions  in 
Asia,  and  if  Germany  and  Eussia  and  other  countries  having  large 
commercial  and  territorial  interests  there,  Avould  unite  Avitli  the 
United  States  and  China  in  the  adoption  of  a  common  standard  for 
a  ncAv  coinage  system  in  the  siher  countries;  in  recommendations 
for  the  readjustment  of  the  fiscal  and  monetary  relations  of  China 
Avith  the  other  poAvers  Avhich  Avould  permit  that  country  to  continue 
to  be  a  user  of  sih'er  and  a  purchaser  of  the  products  of  the  manu- 
facturing nations;  and  in  such  provision  for  their  OAvn  subsidiary 
currencies  as  Avould  tend  to  promote  stability  of  relationship  between 
their  gold  and  silver  money.  The  Chinese  Imperial  Government 
will  Avelcome  the  cooperation  of  the  United  States  in  this  matter  in 
any  form  Avhich  may  be  acceptable  to  that  power,  and  earnestly  prays 
that  the  subject  may  receive  the  prompt  and  serious  consideration 
which,  in  the  opinion  of  this  Government,  it  merits. 


GOLn    STANDAKD    IN    INTERNATIONAL    TRADE.  <9 

II.   MESSAGE   FROM    THE   PRESIDENT  OF  THE  UNITED   STATEL-, 

TKANSMITTING 

A  REPORT  FROM  THE  SECRETARY  OF  STATE,  WITH  ACCOaiPANYING  NOTES 
rR03I  THE  MEXICAN  A]\IBASSADt)R  AND  THE  CHINESE  CHARGE  d'aF- 
FAHSES  AD  INTERIM,  WHICH  SEEK  THE  COOPERATION  OF  THE  GOVERN- 
MENT OF  THE  UNITED  STATES  IN  SUCH  MEASURES  AS  WILL  TEND  TO 
RESTORE  AND  MAINTAIN  A  FIXED  RELATIONSHIP  BETWEEN  THE  MONEYS 
OF  THE  GOLD-STANDARD  COUNTRIES  AND-THE  SILVER-USING  COUNTRIES, 
ETC. 

To  the  Senate  and  House  of  Represeiitatioes: 

I  transmit  herewith  a  report  from  the  Secretary  of  State,  with 
accoiiipanyiDg'  notes  from  the  Mexican  ambassador  and  the  Chinese 
char<ie  d'ati'aires  ad  interim,  which  seek  the  cooperation  of  the  Govern- 
ment of  the  United  States  in  such  measures  as  Avill  tend  to  restore  and 
maintain  a  fixed  rehitionsliip  between  the  moneys  of  the  gokl- 
standard  countries  and  the  silver-using  countries. 

I  recommend  that  tlie  Executive  be  given  sufficient  i)owers  to  k'ud 
the  support  of  the  United  States,  in  such  manner  and  to  such  degree 
as  he  may  deem  expedient,  to  the  purposes  of  the  two  Governments. 

Theodore  Koosevelt. 

White  House,  Januanj  20^  1003. 


The  President  : 

I  have  the  honor  to  submit  herewith  a  transhition  of  a  note  from 
the  ambassador  of  the  Eepublic  of  Mexico  and  a  cop}^  of  a  note  from 
the  charge  d'afl'aires  of  the  Imperial  Chinese  Government.  Both  notes 
ask  the  cooperation  of  the  Government  of  the  United  States  in  such 
measures  as  will  tend  to  restore  and  maintain  a  fixed  relationship 
l)etween  the  moneys  of  the  gold-standard  countries  and  the  silver- 
using  countries.  It  is  not  asked  that  the  United  States  modify  its 
monetary  system,  and  it  is  distinctly  disavowed  that  any  movement  is 
contemplated  for  the  restoration  of  international  bimetallism.  The 
o])inion  is  expressed,  however,  by  representatives  of  both  Govern- 
ments, that  consultation  between  the  United  States  and  European 
powers  haviug  dependencies  in  the  Orient,  and  the  independent  coun- 
tries where  silver  money  is  in  general  use,  may  result  in  the  adoption 
of  a  monetary  system  which  will  prevent  the  great  fluctuations  in 
exchange  which  now  occur  in  trade  with  the  silver-using  countries. 
If  such  a  result  can  be  achieved — and  it  is  pointed  out  that  at  least  a 
partial  solution  has  been  proposed  in  the  United  States  in  a  bill  now 
l)ending  in  the  Senate  in  regard  to  the  Philip])ine  Islands — great 
benefits  will  follow  to  the  trade  of  the  world  by  making  easier  the 
access  of  the  products  of  the  manufacturing  nations  to  the  markets  of 
China  and  the  other  silver-using  countries. 

The  consideration  of  this  subject  may  have  an  important  beari ug 
also  on  the  payment  of  the  indemnity  due  by  China  to  certain 
European  powers  and  to  the  United  States  by  enabling  the  Chinese 
Empire  to  put  her  monetary  system  upon  a  basis  which  will  make  it 
possible  for  her  to  meet  these  payments  in  a  manner  satisfactory  to 


80        GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

all  tlie  powers.  This  result,  if  it  could  be  accomplished,  would  be  of 
the  first  importance  not  only  to  the  United  States  and  to  the  other 
powers  having  a  share  in  the  indemnity  payments,  but  to  China  her- 
self and  her  future  development. 

I  respectfully  submit  for  your  consideration  that  these  communica- 
tions be  transmitted  to  Congress  with  the  recommendation  that  the 
Executive  be  given  sufficient  poAvers  to  lend  the  support  of  the  United 
States,  in  such  manner  and  to  such  degree  as  you  may  deem  exi^edient, 
to  the  purposes  of  the  two  Governments  whose  notes  are  herewith 
submitted. 

Respectfully  submitted. 

John  Hay. 

Department  of  State, 

Washington,  January  2S,  1903. 


List  of  papers. 

From  Mexican  ambassador,  January  15,  1903,  witli  inclosed  memorandum. 

From  Chinese  charge,  January  19,  1903. 

From  Chinese  charge,  January  22,  1903,  with  inclosed  memorandum. 


III.    SUGGESTIONS    REGARDING    A    NEW  MONETARY  SYSTEM    FOR 

CHINA. 

1.  The  Chinese  Imperial  Government  promptly  to  take  effective 
steps,  satisfactory  to  a  majority  of  the  indemnity  treaty  powers,  to 
establish  a  general  monetary  sj^stem  consisting  chiefly  of  silver  coins 
with  a  fixed  gold  value. 

2.  In  the  establishment  and  management  of  this  system  China  to 
invite  and  employ  acceptable  foreign  assistance. 

3.  In  ])ursuance  of  this  plan,  the  Chinese  Government  to  apj^oint 
a  foreign  controller  of  the  currency,  wdio  shall  have  general  charge 
of  the  system  for  China;  he  to  have  acceptable  associates  in  charge 
of  the  mint  or  of  such  work  as  he  may  prescribe. 

4.  The  controller  to  make  monthly  reports  in  detail  of  the  condi- 
tion of  the  currency,  including  amounts  in  circulation,  loans,  drafts 
on  foreign  credits,  etc.  His  accounts  (but  not  those  of  the  general 
Government)  to  be  open  at  reasonable  times  to  inspection  by  accred- 
ited representatiA^es  of  the  poAvers  interested  in  the  indemnity, 
provided  the  Chinese  Government  judges  that  such  a  provision 
Avould  be  wise  in  order  to  secure  confidence  in  the  system.  Such 
rei)resentatives,  as  also  the  associate  controllers,  to  have  the  right  of 
suggestion  and  recommendation. 

5.  The  Chinese  Government  to  adopt  a  standard  unit  of  value. 
The  unit  to  consist  of grains  of  gold,  and  to  be  Avorth  presum- 
ably, approximately,  the  gold  value  of  a  tael,  or  somcAvhat  more  than 
a  Mexican  dollar.  Provision  to  be  made  for  the  free  coinage  of 
suitable  pieces,  multiples  of  this  unit,  5,  10,  and  20,  on  demand,  for 
a  reasonable  coinage  charge.  Eventually  some  to  be  coined  on  Gov- 
ernment accoimt. 

6.  China  to  coin  as  rapidly  as  possible silver  coins,  with  an 

appropriate  device,  about  the  size  of  a  Mexican  dollar,  for  circulation 
in  the  country.     These  to  be  maintained  at  par  with  the  standard  gold 


GOLD  STANDARD  IN  INTP^KNATIONAL  TRADE.         81 

unit  at  a  ratio  of  about  '\'2  1o  1.  More  to  ho  coined  thereafter,  accord- 
ing to  needs,  as  indicated  hy  provisions  folh)win<j;.  Subsidiary  and 
minor  coins,  silver,  nickel,  and  copper,  of  suitable  weight  and  value 
to  be  ])rovided. 

T.  Both  the  gold  and  silver  coins  to  be  receivable  at  par  in  payment 
of  all  obligations  i]uo  to  the  Chinese  Imperial  (iovernment  in  any  of 
the  provinces.  A\'hen  such  obligations  have  been  made  in  silver,  the 
new  coins  nuiy  be  tendered  instead  at  their  coin  value. 

8.  The  Government  at  its  discretion,  in  conjunction  with  the  vice- 
roys, from  time  to  time  to  declare,  by  proclamation,  in  the  various 
provinces  the  new  coins  legal  tender  for  debts  incurred  after  a  date 
fixed  in  the  proclamation.     Previous  debts  to  I)e  paid  as  contracted. 

0.  For  the  maintenance  of  the  parity  of  the  silver  coins,  the  Chinese 
(lovernuient  to  open  credit  accounts  in  London  and  other  leading 
coiumercial  centers  against  which  it  may  draw  gold  bills  at  a  fixed 
rate,  somewhat  above  the  usual  banking  rates.  For  example,  if  the 
usual  banking  rate  on  London,  inider  the  system,  ^^'ere  about  1  of  the 
new  coins  for  "is.,  the  Goyernment  might  sell  if  the  rate  rose  to  1.02 
for  2s.  Such  drafts  to  be  made  only  under  the  direction  of  the  con- 
troller of  the  currency,  but  to  be  made  on  demand  for  all  depositors  of 
the  new  silver  coins  in  sums  of  not  less  than,  say,  10.000  taels. 

10.  Should  it  be  necessary  to  make  a  loan  for  the  estal)lishment  of  a 
general  monetary  system  with  ade(iuate  exchange  funds,  it  to  be  se- 
cured by  sources  of  revenue  sufficient  to  yield  an  amount  which  will 
provide  for  the  needed  interest  and  sinking  fund,  such  revenues  to  be 
managed  in  a  way  satisfactory  to  the  parties  interested. 

11.  The  seigniorage  j^rofit  from  coinage  to  be  kept  as  a  separate 
fund.  Whenever  r)()0,000  taels  worth  shall  have  been  accumulated,  it 
to  be  placed  as  a  gold  deposit  with  the  several  foreign  depositaries  in 
proportion  to  drafts  made  upon  them.  This  process  to  be  continued 
till  at  least taels  worth  shall  be  in  the  gold  fund  on  deposit. 

12.  P^or  replenishing  the  gold  fund  after  its  reduction  b}'  drafts,  th'> 
controller  to  honor  silver  drafts  drawn  by  the  foreign  agents  of  tli  ^ 
treasury  in  exchange  for  gold,  at  rates  fixed  by  the  controller. 

18.  Provision  to  be  made  for  a  banking  law  under  which  bank  note  ; 
kept  at  par  with  the  legal-tender  currency  may  be  issued  by  an  impe- 
rial bank  or  by  other  responsible  banks  under  the  supervision  of  the 
controller. 

11.  xVs  rapidly  as  is  practi(;able  the  new  currency  to  l)e  introduced 
into  the  various  j)rovinces,  the  controller  making  use  of  the  local  gov- 
ernments, banks,  business  houses,  and  such  other  agencies  as  are  best 
suited  to  the  purpose. 

15.  Within  five  years  the  new  system  to  be  introduced  into  all  the 
treaty  ports,  and  as  far  as  possible  elsewhere,  and  all  customs  duties 
to  be  collected  in  terms  of  the  new  currency.  Local  taxes  to  be  col- 
lected in  new  currency  as  fast  as  it  is  adopted  in  provinces,  and  pro- 
vision also  to  be  made  for  the  keeping  of  the  tax  accounts  under  the 
new  system. 

16.  The  new  system  to  be  put  into  effect  Avhen  of  the  new 

coins  are  ready  for  circulatiou. 

17.  The  controller  and  the  representatives  of  the  powers  to  be 
authorized  to  recommend  economic  reforms  to  the  Imperial  Govern- 
ment. 

S.  Doc.  128,  58-3 6 


82  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 


V.     CONSIDERATIONS     REGARDING    A    NEW    MONETARY    SYSTEM 

FOR    CHINA. 

1.  ADVANTAGES  OF  A  GOOI)  SYSTI^M. 

WHien  the  Imperial  Government  of  China,  on  January  22,  1003, 
addressed  its  memorandnm  to  the  United  States  concerning  the  estab- 
lishment of  a  new  monetary  system  which  should  fix  the  rate  of  ex- 
change between  China  and  gold-standard  countries,  the  Government 
of  China  doubtless  fully  recognized  the  great  advantages  which  would 
accrue  to  it  should  such  a  reform  be  carried  out.  It  doubtless  also 
realized  that  such  a  reform  would  be  beneficial  to  the  nations  with 
which  it  had  commercial  relations.  It  is,  however,  perhaps  well  to 
mention  here  what  may  be  some  of  the  advantages  both  to  China  and 
to  the  foreign  countries  concerned,  and  to  note  also  how  this  move- 
ment appeared  to  others. 

It  was  natural  that  the  Government  of  the  United  States  should 
welcome  the  ^proposition  to  put  China  upon'  a  gold  basis  and  should 
look  for  the  cordial  cooperation  of  the  leading  manufacturing  and 
exporting  nations  of  Euroj^e,  because  such  a  measure  promises  so 
much  for  the  extension  of  their  future  trade  and  their  opportunities 
for  safe  investments.  The  present  uncertainties,  due  to  fluctuations 
in  exchange,  in  regard  to  the  profits  upon  commercial  operations  be- 
tween the  gold  countries  and  the  silver  countries  would  be  brought  to 
an  end  if  these  fluctuations  were  brought  Avithin  the  usual  limits 
between  two  gold  countries.  Under  present  conditions  the  importer 
in  a  sih^er  country  is  compelled  to  live  from  hand  to  mouth  and  to 
greatly  restrict  his  orders  for  goods  given  to  European  and  American 
exporters.  Investments  of  capital  are  even  more  hazardous,  since 
a  fall  in  the  price  of  silver  equal  to  that  Avhich  occurred  within  a  few 
•mouthy  in  1902  would  wipe  out  profits  of  15  or  20  per  cent  and  reduce 
by  that  amount  the  value  of  an  investment  made  in  a  silver  country 
it  it  were  sought  to  withdraw  it  in  gold. 

The  adoption  of  a  stable  exchange,  by  remedying  tliese  conditions, 
would  unquestionabl}^  stimulate  the  importation  into  China  of  the 
products  of  European  and  American  mills  and  factories.  Many  of 
these  importations  would  be  in  the  form  of  advances  of  capital  for 
the  development  of  the  rich  natural  resources  of  China.  These 
investments  would  be  made  in  the  form  of  rails  and  rolling  stock  for 
new  railways,  equipment  for  factories,  and  supplies  for  the  laborers 
engaged  in  extending  railways  and  modern  industrial  methods 
throughout  China.  The  fact  that  such  exportations  from  the  manu- 
facturing countries  won  hi  not  dej^end  primarily  upon  the  increased 
consuming  power  of  the  Chinese  people,  but  upon  the  surplus  of 
capital  of  tlie  rich  countries  seeking  investment,  would  greatly  stimii- 
•late  this  movement  in  the  earlier  years.  This  was  the  experience  of 
Russia  and  rfapan  when  they  adopted  the  gold  standard.  In  the  case 
of  Russia,  imports  of  foreign  goods  rose  from  41(),000,000  roubles 
($210,000,000  gold)  in  1S90  to  620,000,000  roubles  ($315,000,000 
gold)  in  1900 — an  increase  of  50  per  cent  in  ten  years.  In  the  case  of 
Japan,  the  imports  of  foreign  goods  rose  from  81,000,000  ven 
($40,000,000)    in    1890   to   over   300,000,000   yen    ($150,000,000)    in 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  83 

1900 — an  increase  of  about  200  per  cent,  even  when  allowance  is  made 
for  the  reduced  vahie  of  the  yen  by  the  fall  of  silver. 

If  a  ratio  of  increase  correspond  in  o-  to  that  of  Japan  were  to  occur 
in  the  imports  of  forei<j:n  i^oods  into  China,  such  imports  would  rise 
Avithin  ten  years  from  50  cents  to  $1.50  per  capita  and  a  market  would 
be  opened  for  $400,000,000  worth  in  American  gold  of  the  products  of 
Euroi)e  and  America,  in  addition  to  the  present  volume  of  their  trade 
with  China.  While  it  is  probable  that  the  development  of  the  com- 
merce of  Chiua  would  not  be  so  rapid  as  that  of  Japan,  there  can  be 
no  doubt  that  the  o])port unity  for  lar<!:e  trade  and  safe  investments 
otl'ered  by  the  adoption  of  a  uuiform  currency  in  China  based  upon 
Ihe  i»()ld  standard  woidd  all'ord  benelits  to  the  mainifacturing  and 
e\])t)rtin<r  nations  which  abtnidantly  justify  earnest  ell'orts  on  their 
part  to  secure  such  an  important  economic  result. 

Already,  at  about  the  date  of  the  ai^pointment  of  the  Commission, 
the  importance  of  stable  exchange  in  China  liad  become  a  subject  of 
discussion  in  the  Orient  and  of  action  by  several  commercial  bodies. 
Typical  of  these  expressions  is  the  resolution  adoi^ted  on  April  18 
last  by  the  Shanghai  General  Chaml)er  of  Connnerce: 

"  Having  in  view  the  fact  that  silver  is  subject  to  violent  fluctua- 
tions, and  that  China's  financial  obligations,  national  and  commercial, 
are  now  mainly,  and  in  future  Avill  probal)ly  be  entirely,  witli 
gold-using  countries,  this  chamber  is  of  opinion  that  the  treaty  ])ow- 
ers  should  urge  the  Chinese  Government  to  take  the  necessary  steps 
without  delay  to  provide  for  a  uniform  national  coinage  as  a  first  step 
toward  establishing  the  currency  of  this  country  on  a  gold  basis  at  as 
early  a  date  as  practicable." 

The  high  authority  of  Sir  Robert  Hart,  inspector-general  of  the 
imperial  maritime  customs,  may  also  be  invoked  in  favor  of  securing 
for  China  the  great  commercial  and  fiscal  benefits  of  a  gold  standard. 
In  a  pa])er  ])resented  to  the  board  of  foreign  affairs  and  printed  in  the 
North  China  Herald  of  July  3,  1903,  Sir  Robert  Hart  declares: 

"  It  would  be  much  wdser  for  China  to  maintain  a  gold  standard 
instead  of  a  silver  one  as  at  present,  since  silver  has  dropped  down  to 
such  a  degree,  and  moreover  possesses  no  certain  or  uniform  exchange, 
even  within  the  limits  of  a  single  day.  The  hundreds  of  trades  are  all 
disastrously  affected  by  the  present  state  of  the  currency,  while  the 
Government  having  to  pay  its  foreign  debts  in  gold,  both  country 
and  people  are  being  plunged  into  the  depths  of  financial  distress. 
The  conditions  pictured  in  the  foregoing  therefore  compel  one  to 
seek  some  plan  wherel)y  they  may  be  ameliorated,  and  so  make  it  that 
China,  while  still  using  a  silver  currency,  shall  so  fix  a  uniform 
exchange  between  silver  and  gold  that  there  may  be  no  danger  of 
uncertain  fluctuations." 

Such  reform,  however,  needs  to  be  very  carefully  considered  from 
all  possible  points  of  view.  Closely  related  to  the  project  of  estab- 
lishing a  definite  monetary  system  for  China  on  the  gold  basis  are 
several  subjects  relating  to  the  monetary  systems  of  other  countries 
of  the  Orient,  most  of  which  are  dependencies  of  the  leading  Euro- 
l)ean  powers.  These  countries  include  the  Philippines,  under  the 
authority  of  the  United  States;  the  Straits  Settlements,  under  the 
authority  of  Great  Britain;  Indo-China,  under  the  authority  of 
France,   and   the   dejjendencies  and   colonies  of   Germany   in   East 


8-i  GOLD    STANDARD    IN    INTERNATIONAL    TRADPJ. 

Africa  and   Asia.     In  snpport   of  the  general   objects  sought,  the 
Commission  presented,  therefore,  to  the  European  powers: 

1.  Suggestions  for  a  monetary  system  for  Cliina. 

2.  The  subject  of  approximate  uniformity  in  the  relationship  be- 
tween the  gold  unit  and  the  silver  coinage  in  China  and  in  such 
other  countries  as  may  hereafter  establish  new  monetary  systems 
based  on  the  gold  standard. 

3.  The  subject  of  establishing  a  certain  regularity  in  such  pur- 
chases of  silver  bullion  as  are  actually  reqiured  for  coinage  purposes, 
with  a  view  to  aiding  the  gold  price  of  silver  and  eliminating,  as 
far  as  practicable,  the  extreme  fluctuations  in  pri(;e  incident  to  specu- 
lation, thus  rendering  the  adoption  of  the  gold-exchange  system 
much  more  easily  attainable  in  countries  whose  credit  needs 
strengthening. 

2.  DIFFICULTIES    OF    A    CHANGE    IN    CHINA. 

The  question  of  a  monetary  system  for  the  Empire  of  China  is 
distinctly  a  practical  one.  While  the  establishment  of  a  new  mone- 
tary system  in  a  country  so  differently  situated  as  regards  its  busi- 
ness, governmental  organization,  and  civilization  from  those  of  the 
western  world  would  be  one  of  great  interest  to  all  students  of  mone- 
tary science,  nevertheless  the  question  as  treated  by  the  American 
Connnission  on  Internation  Exchange  is  one  which  has  to  do  with 
governmental  action  and  with  the  action  of  business  men  in  the  near 
future;  and,  in  consequence,  it  is  to  be  considered  chiefly  from  the 
point  of  view  of  practice.  Under  these  circumstances  it  is  advisable 
at  once  to  realize  as  clearly  as  possible  the  difficulties  which  stand  in 
the  Avay  of  the  establishment  of  any  satisfactor}^  monetary  system  in 
the  Chinese  Empire.  The  chief  difficulties  may  perhaps  be  enumer- 
ated as  follows: 

1.  At  the  present  time  China  has  no  national  monetary  system. 
Indeed,  it  woidd  not  be  too  much  to  say  that  she  has  no  monetary  sys- 
tem at  all  of  the  tyj^e  common  in  Europe  and  America.  In  several  of 
the  treaty  ports  silver  coins  circulate  largely;  in  Shanghai  and  Tient- 
sin, the  Mexican  dollars;  in  certain  parts  of  Manchuria,  the  Russian 
rouble;  in  Canton  and  Hankow  and  in  various  provinces,  dollars 
coined  by  the  mints  of  the  respective  viceroys;  and  other  coins  are 
also  used  in  different  places.  In  many  of  these  ports,  even,  as  gener- 
ally in  the  interior,  instead  of  coins,  silver  shoes — sycees — or  other 
forms  of  siher  bars  are  used,  which  pass  in  accordance  with  their 
weight  and  fineness.  In  the  country  districts  in  the  interior  even  sil- 
ver is  comparatively  seldom  employed  by  the  Chinese,  the  (;opper  cash 
being  practically  the  sole  medium  of  exchange.  Even  the  so-called 
silver  unit  of  the  tael  has  no  general  validity.  In  Shanghai  the  tael 
means  one  weight  of  silver,  in  Tientsin  another,  m  Peking  another — 
a  ])()pular  book  on  (coinage  enumerating  fourteen  different  taels  of 
different  Aveights;  and  the  tael  thus  varies  in  weight  and  in  conse- 
(|uence  in  value  in  the  different  j)arts  of  China.  Tinder  these  circum- 
stance's, of  course,  the  (juestion  of  a  national  monetary  system  for  the 
Chinese  P]m])ire  involves  not  nieivly  the  learning  of  tlie  value  of  some 
new  (;oin  on  the  part  of  the  {people,  as  would  be  tlie  case  in  any  of  the 
Euro|K^an  countries,  but  it  involves  also  the  j^roblem  of  having  the  peo- 
ple become  accustomed  to  the  use  of  coins  which  may  be  counted,  in- 


GOLD    STAN1>AH1)    IN    INTERNATIONAL    TRADE.  85 

Btead  of  silver  wliich  iiuist  bo  woiohod.  Aforoovor,  llio  Chinoso  people 
are  j)rovei"l)ially  consiM-vati^e  and  indisposed  to  chanii'e  I'loin  the  cus- 
toms of  their  fathers.  Experience  both  in  China  and  elsewhere,  how- 
ever, shows  that  a  people  soon  learn  a  new  money  system  if  it  is  for 
their  advantage.  Moreover,  China  has  in  one  way  a  decided  advan- 
tage in  Iniving  no  established  uniform  system,  tier  Government  is 
under  no  ol^ligation  to  redeem  the  old  coins,  except  those  issued  by  the 
provincial  governments. 

'2.  The  central  Government  of  China  has  not  been  accustomed  to 
enter  into  the  details  of  administration  of  local  government  in  the 
ditl'erent  parts  of  China.  Those  details  have  been  enti'usted  to  the 
viceroys  and  other  local  olhcials.  For  the  establishment  of  a  national 
monetary  system  in  any  country  it  is  ordinarily  understood  that  the 
central  goA^ernment  must  be  strong,  and  that  it  nnist  exercise  its 
authority  directly  over  individuals  throughout  the  country.  It  will 
l)e  recalled  that  when  the  United  States  Avas  first  organized  under  the 
confedi'ration,  the  Government  practically  1)roke  down  l)ecause  the 
central  Government  could  act  upon  individuals  only  through  the  sep- 
arate States.  Possibly  the  most  essential  im]5roA'enient  in  the  new 
Constitution  was  the  estal)lishment  of  authority  in  the  central  Gov- 
ernment to  deal  on  certain  matters  directly  with  individual  citizens 
throughout  the  entire  territory  included  in  the  United  States  with- 
out the  intervention  of  local  authorities.  The  fact  that  the  central 
Government  in  China  has  not  been  accustomed  to  deal  thus  directly 
with  the  individual  citizen  in  many  matters  will  make  it  necessary 
for  the  success  of  the  new  system  to  extend  somewhat  this  custom, 
and  also  to  secure  the  co-oj^eration  of  the  viceroys  and  of  other  local 
authorities  in  order  to  nuike  the  sj^stem  effective  with  as  little  friction 
as  possible.  There  is  no  doubt  that,  by  the  organization  of  a  central 
national  bank  or  some  similar  centralized  organization  this  difficulty 
can  be  largely  overcome. 

3.  Of  course  wherever  a  change  in  the  present  monetary  system 
Avould  lessen  materially  the  revenues  of  the  viceroys,  governors,  and 
other  officials,  it  would  be  only  just  that  care  be  taken  so  to  adjust  the 
local  revenues  or  the  revenues  of  the  new  system  that  reasonable  com- 
pensation would  be  made  to  the  officials  for  the  losses  sustained. 
While  the  new  system  would  tend  toward  needed  centralization  of 
administration,  such  administrative  change  ought  not  to  be  made 
unjustly  Avithout  due  consideration  for  present  conditions. 

It  has  also  been  suggested  that  a  general  monetary  system,  espe- 
cially if  it  were  founded  on  a  gold  basis,  Avould  be  contrary  to  the 
personal  interests  of  many  of  the  local  officials  and  of  the  indiA'idual 
Chinese  bankers,  that,  in  consequence,  it  would  meet  their  o])position 
hud  would,  therefore,  1)e  likely  to  fail.  It  is  said  that  it  has  been  the 
custom  for  the  local  officials  in  receiving  the  taxes  and  other  obliga- 
tions due  the  Government,  to  make  profit,  at  times  large,  from  the 
exchange  of  the  local  silver,  coi)per,  or  other  material  employed  in 
payment  into  the  form  in. which  payments  were  made  to  the  higher 
authorities.  If  a  monetary  system  were  to  become  general  and  the 
taxes  were  levied  directly  in  terms  of  the  new"  coin,  this  profit  from 
excliange.  etc.,  might  possibly  be  largely  taken  aAvay. 

The  local  f)ankers  have  also,  it  is  said,  made  large  profits  often  from 
themselves  acting  as  exchange  agents  in  making  |)ayment  between 
individuals  and  jjetween  the  individuals  and  the  Goverinnent. 


86        GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

Some  persons  have  even  been  of  the  opinion  that  opposition  wouki 
be  made  to  a  new  system  even  by  the  European  bankers,  because  tlieir 
business  has  for  a  long  time  been  largely  an  exchange  business,  and  a 
very  large  percentage  of  their  profits  lia\e  come  from  their  profits  in 
exchange.  If  the  monetary  system  of  China  were  placed  on  a  gold 
basis,  it  is  thought,  these  profits  naturally  would  be  very  .much  less- 
ened. In  most  cases  these  difficulties  are  not  important  and  will  make 
no  trouble.  The  w^ay  in  wdiich  the  new  system  will  Ijenefit  instead  of 
injure  both  these  classes  is  explained  later. 

3.  The  Government  of  China  is  under  so  great  financial  obligations 
on  account  of  its  foreign  debt  and  the  indemnity  due  the  powers  that 
any  monetary  plan  to  succeed  ought  to  have  the  good  will  and  moral 
support  of  all  the  great  powers;  or,  at  any  rate,  it  must  be  one  which 
will  not  interfere  in  any  adverse  way  with  the  settlement  of  tlie  obli- 
gations which  are  due  to  them.  It  is  on  this  account,  of  course, 
that  it  has  been  thought  desirable  for  China  and  those  assisting  her 
in  the  attempt  to  inaugurate  a  new  monetary  system  to  secure  before- 
hand the  sympathy  and  moral  support  of  all  the  great  powers  inter- 
ested in  the  indemnity.  Such  sympathetic  consideration  has  already 
been  secured  by  the  visit  of  the  Connnission  on  International  Ex- 
change to  Europe  and  Japan.  The  obligation  of  the  indemnity  has, 
of  course,  weakened  the  power  of  China  financially  for  a  time,  but 
it  is  hoped  this  may  be  overcome. 

4.  Inasmuch  as  the  stability  of  exchange  in  the  settlement  of  pay- 
ments in  foreign  trade  is  a  matter  of  prime  importance  in  connection 
with  the  proposed  monetary  system,  being  in  fact  the  point  on  which 
the  chief  emphasis  was  laid  by  the  Chinese  Government  in  its  memo- 
randum addressed  to  the  United  States  Government  January  22, 
1903,  the  plan  and  the  method  of  administration  in  order  to  be  suc- 
cessful must  commend  themselves  to  foreign  business  men  who  are 
engaged  in  trade  with  China.  The  Chinese  indemnity,  in  accordance 
with  the  interpretation  given  to  the  protocol  by  several  of  the  powers, 
is  payable  in  gold  and  is  payable  through  the  medium  of  a  committee 
of  business  men  and  bankers. 

Foreigners  who  have  money  to  invest  are  deterred  from  such 
.investment  in  China  by  the  danger  of  loss  coming  from  the  fluctu- 
ations in  the  rates  of  exchange.  Persons  who  have  goods  to  sell  in 
China,  not  knowing  what  their  return  will  be  when  sales  are  made 
in  terms  of  the  silver  unit  in  China  on  account  of  the  fluctuations 
in  tlie  value  of  that  unit,  may  at  times  meet  with  losses,  when  on  the 
(hiy  of  the  sale  the  terms  agreed  upon  Avouhl  secure  a  ])rofit.  Other- 
Avise  they  must  pay  bankers  liberal  commissions  for  forward  rates  of 
exchange.  In  consequence,  business  men  naturally  liesitate  about 
exporting  to  China.  Between  1882  and  1002  it  has  been  estinuited 
in  a  letter  by  Sir  Charles  Dudgeon  to  the  China  Association,  that 
silver  declined  in  value  as  comjiared  with  gold  49.7  per  cent;  as  com- 
pared with  copper  cash,  20.5  per  cent.  As  compared  with  gold,  cop- 
per cash  has  fallen  a])out  32.5  per  cent. 

Und<'r  these  cii'cunistances  any  ])lan  whicli  is  to  be  successful  must 
be  not  merely  good  in  itself,  but,  if  it  is  to  overcome  these  evils,  it 
must  be  one  v\hich  will  have  the  confidence  of  both  Chinese  and  for- 
eign business  men.  The  plan  here  jiroposed  is  in  accoi'dance  with  the 
views  of  the  majority  of  the  ablest  bankers  and  business  men  con- 
sulted. 


GOLD    STANDAKD    IN    INTERNATIONAL    TUADK.  87 

5.  The  Amei"iciUi  coiiunissioiicrs,  in  presenting  a  plan  for  a  mone- 
tary system  for  China,  represent  China,  inasmuch  as  they  were 
appointed  for  this  purpose  on  the  invitation  of  the  Chinese  Govern- 
ment. The  plan  A\hich  they  present  is  the  one  which  they  believe  to 
be  the  best  for  China  herself,  the  one  that  will  probably  help  China 
the  most  in  both  her  internal  and  her  external  trade,  in  the  settlement 
of  her  forei<!;n  indemnity  obi iiiat ions  and  in  other  re<iards.  The  plan 
nnist,  of  course,  be  one  that  will  in  no  way  be  detrimental  to  the  sover- 
eign rights  of  China.  It  should  be  one  that  will  as  rapidly  as  possi- 
ble fit  into  the  customs  of  the  people.  Inasmuch  as  the  Chinese  are 
not  accustomed  to  a  general  monetary  system  of  the  occidental  type,  it 
has  been  felt  that  the  way  to  accomplish  this  purpose  most  easily  is 
to  foruudale  a  jihni  which  will  appeal  directly  to  the  motive  of  self- 
interest  of  the  individual.  As  companxl  witli  other  oriental  peoples, 
for  examjjle,  the  inhabitants  of  India,  or  of  Java,  or  of  the  Philip- 
pines, the  Chinese  are  noteworthy  for  their  thi'ift  and  their  quick 
intelligence  in  everything  that  touches  their  self-interest.  They  are 
notoriously  shnnvd  in  matters  of  bargain  and  are  ready  to  take 
ad\'antage  of  any  opj^ortunity  for  even  a  slight  profit.  In  conse- 
quence, it  is  thought  that  any  plan  which  provides  a  money  that,  in 
retail  trade,  in  the  settlement  of  obligations,  in  the  payment  of  taxes 
due  the  (irovernment,  and  otherwise,  will  either  free  the  individual 
from  the  liability  of  losses  which  he  has  sutfered  heretofore,  or  will 
give  him  an  opj^ortunity  for  making  a  gain,  however  small,  will  be 
one  that  will  attract  the  Chinese  people;  and  in  this  way  it  ma}^  be 
said  to  fit  into  the  habits  and  customs  of  the  inhabitants,  even  of  those 
who  are  uneducated  and  untrained  in  business  methods. 

As  has  been  said  one  must  not  underestimate  the  difficulties  which 
iitand  in  the  Avay  of  the  introduction  of  any  new  system ;  but,  on  the 
other  hand,  in  spite  of  these  difficulties  and  adverse  conditions,  it 
is  thought  it  is  worth  while,  both  for  China  and  for  the  people  who 
are  doing  business  in  China  and  with  China,  that  at  least  a  beginning 
be  made  toward  the  introduction  of  a  rational  national  monetary  sys- 
tem. AA'ithin  the  last  tAvo  or  three  years  many  suggestions  have  been 
made  in  this  direction.  The  Chinese  Government  has  issued  a  decree 
commanding  its  board  of  finance  to  organize  and  put  into  effect  such  a 
system.  It  has  instructed  its  delegate  to  the  Osaka  Exposition  in 
Japan  to  make  a  study  of  the  Japanese  monetary  system  with  refer- 
ence to  obtaining  information  Avhich  might  aid  the  Government  in 
formulating  its  own  plan.  The  Tientsin  and  Shanghai  chambers  of 
conmierce  have  adopted  resolutions  looking  toward  the  establishment 
of  a  new  system.  The  Hongkong  Chamber  of  Commerce  has  likewise 
acted  in  a  somewhat  similar  direction.  Sir  Robert  Hart  has  outlined 
a  plan  which  has  been  submitted  to  the  Chinese  Government.  The 
Chinese  Government,  in  its  commercial  treaties  with  England,  Japan, 
and  the  United  States,  has  agreed  to  establish  a  national  monetary 
system.  With  so  much  agitation  on  that  sul)ject  and  with  so  evident 
readiness  on  the  part  of  the  Chinese  Government  to  act,  it  ispractically 
certain  that  some  attempt  toward  reform  will  be  made.  It  is  in  conse- 
quence extreme!}'  desirable  that  when  a  beginning  is  made  it  be  made 
in  the  right  direction.  It  is  not  to  be  expected  that  all  the  difficulties 
enumerated  can  be  overcome  promptly,  nor  that  a  national  system 
which  shall  be  generally  employed  throughout  China  can  be  put  into 
full  effect  within  a  short  space  of  time.     If  a  beginning  is  made  in 


88        (K)LD  STANDARD  IN  INTERNATIONAL  TRADE. 

the  right  dircetion  there  will  be  nothing  to  retrace,  and  the  systeiin  can 
be  put  into  effect  along  right  lines  with  the  practical  certainty  that 
eventually  the  end  desired  will  be  attained. 

3.  THE  INTRODUCTION  OF  THE  NEW  SYSTEM. 

It  has  been  thought  by  a  minority  of  the  persons  who  have  dis- 
cussed with  the  American  Commission  their  monetary  plans  that,  on 
account  of  the  fact  that  the  Chinese  people  are  not  accustomed  to  a 
national  monetary  system,  it  would  be  wiser  to  l)egin  by  introducing 
a  general  monetary  silver  imit,  in  order  that  the  people  might  thus 
become  accustomed  to  the  use  of  a  national  coin  of  a  recognized 
weight  and  fineness,  and  that  the  establishment  of  this  coin  upon  a 
parity  Avith  gold  be  made  a  matter  for  later  action  after  this  first  step 
had  been  taken.  It  has  been  the  opinion,  on  the  other  hand,  of  the 
American  Commission,  and,  it  may  be  said,  also  of  the  large  major- 
ity of  those  with  whom  the  question  has  been  officially  discussed, 
that  it  would  be  a  wiser  plan,  because  in  the  end  an  easier  plan,  in 
starting  the  new  system,  to  establish  the  new  coins,  silver  and  copper, 
on  a  gold  basis,  and  from  the  beginning  to  maintain  them  at  a  parity 
with  gold. 

There  are  various  reasons  for  beginning  on  the  gold  parity : 

1.  The  benefit  of  the  system  will  be  more  evident  from  the  begin- 
ning. While  a  national  silver  currency  not  on  a  parity  with  gold 
would  be  of  great  benefit  to  the  internal  trade  of  the  country,  the 
export  and  import  trade  would  be  helloed  directly  in  no  Avay  by  such 
a  system.  It  would  receive  only  indirect  benefits,  such  as  the  encour- 
agement of  internal  trade  would  give  to  trade  with  foreign  countries. 
On  the  other  hand,  it  is  extremely  desirable  that  the  export  and 
import  trade  be  encouraged  as  soon  as  joossible,  because  through  that 
trade  will  perhaps  come  one  of  the  chief  benefits  to  China  in  enabling 
her  to  pay  off  more  easily  her  foreign  debts. 

It  can  not  properly  be  urged  that  the  chief  or  even  the  first  benefit 
of  tJie  new  system  would  go  to  the  foreigners,  though,  of  course,  they 
also  will  be  benefited.  The  Chinese  as  the  producers  of  the  goods  to 
be  exported,  and  as  the  consumers  of  the  imports,  will  gain  most. 
The  fluctuations  in  exchange  have  checked  the  foreign  demand  for 
Chinese  goods.  With  the  increase  in  that  demand  prices  will  natu- 
rally rise  and  a  new  source  of  wealth  for  the  Chinese  will  thus  be 
opened.  Again  as  the  risks  of  a  fluctuating  exchange  have  led  ex- 
porters to  pay  the  lowest  possible  i)rices  for  goods  to  export,  these 
same  risks  have  led  importers  to  ask  the  highest  possible  prices  for 
their  imports.  The  removal  of  the  risk  would  lead  to  an  increase  in 
the  number  of  importers,  to  greater  competition,  and  in  consequence 
to  lower  prices  for  imi)orts.  Though  the  money  may  largely  pass 
first  through  the  hands  of  the  foreign  trader,  the  chief  and  first  real 
benefit  Avill  come  to  the  Chinese  producer  and  c(msumer. 

If,  f(jr  a  short  time,  the  new  system  were  adopted  only  in  the  sea- 
board provinces  and  not  yet  in  the  interior,  of  course  there  would  be 
a  greater  rate  of  exchange  between  interior  and  port  than  now  exists 
for  goods  not  to  be  exported.  As  so  great  a  part  of  the  shipments  to 
the  ports,  however,  is  for  foreign  trade,  so  that  the  gold  rate  must 
now  be  considered,  the  real  fluctuati(ms  in  exchange  in  actual  busi- 
ness would  j)robabl3'  be  less  than  now.     At  any  rate,  the  difiiculty 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  8V) 

would  be  merely  temporary  and  would  be  overcome  as  soon  as  the 
system  could  be  extended  into  the  interior,  and  is  slight  compared 
with  the  great  benefit  to  follow  when  the  system  is  complete. 

2.  The  establishment  of  the  system  on  a  gold  basis  would  encourage 
also  from  the  beginning  tiie  investment  of  foreign  capital  in  China, 
and  this  again  will  be  a  source  of  profit  to  the  Chinese  people  and  to 
the  Chinese  Government,  which  will  enable  them  to  meet  their  obli- 
gations. 

The  benefit  of  a  new  factory  or  a  new  railway  or  other  business 
undertaking  is  very  great  to  any  country.  In  America  it  is  usual  for 
the  peo})le  to  give  not  merely  land  free  for  such  enterprises,  but  they 
often  give  freedom  from  taxes  for  a  period  of  years,  and  at  times  a 
large  bonus  in  cash.  The  new  investment  gives  the  employment  at 
higher  wages  to  more  workmen,  encourages  the  building  of  houses, 
makes  a  greater  demand  for  food  supplies  and  goods  of  all  kinds,  and 
tends  thus  to  nudve  the  whole  people  more  prosperous. 

3.  The  beginning  on  a  silver  basis  with  the  expectation  that  the 
coins  were  afterwards  to  be  raised  to  a  parity  with  gold  would  tend 
to  encourage  speculation  to  a  greater  degree  than  if  the  new  system 
were  established  at  once  on  a  gold  basis.  It  would  tend  still  further 
to  the  unsettling  of  business,  through  a  fall  in  the  })rices  of  goods 
Avhen  the  value  of  the  silver  coins  was  increased ;  and  while  it  might 
prove  a  source  of  considerable  profit  to  the  bankers  or  to  others  who 
might  have  large  stocks  of  the  new  silver  on  hand,  it  could  not  but 
prove  detrimental  to  the  individuals  who  had  large  obligations  to 
meet,  inasmuch  as  they  must  be  met  in  a  coin  of  greater  value. 

4.  The  Government  would  derive  directly  from  the  gold  basis  a 
benefit  from  an  increase  in  its  revenues,  inasmuch  as  it  woidd  be  ex- 
pected that  comparatively  soon,  at  any  rate,  all  the  obligations  due 
the  Government  would  be  collected  in  terms  of  the  new  coin,  and  even 
though  the  readjustment  were  so  made  that  there  would  be  no  addi- 
tional burden  laid  at  first  upon  the  taxpayer,  the  Government  would 
at  an}^  rate  be  saved  from  the  loss  in  the  value  of  its  revenue  Avhich 
might  come  from  the  furtlier  depreciation  in  the  price  of  silver  such 
as  it  has  suffered  during  the  last  few  years,  a  loss,  as  we  have  seen,  of 
nearly  50  per  cent  since  1882.  ' 

Even  though  the  Chinese  Government  might  need  to  make  a  new 
loan  at  first  to  start  the  new  system,  the  added  power  to  pay  taxes, 
which  would  soon  come,  as  has  been  shown,  would  ])e  so  great  as  to 
make  the  real  tax  burden  less  than  it  now  is. 

5.  A  somewhat  indirect  benefit,  but  one  which,  beyond  question, 
would  be  felt  in  the  long  run,  would  be  that  which  would  come  froiii 
improvement  in  business  methods  under  the  influence  of  the  example 
set  by  foreign  investors  as  their  capital  and  business  increased  in  the 
country. 

It  is  believed  to  be  not  merely  thus  more  beneficial  to  China  to  start 
on  a  gold  basis,  but  if  the  gold  basis  is  the  end  to  be  attained,  it  is 
easier  than  to  start  with  silver  which  must  afterwards  be  placed  on  a 
gold  basis,  because,  as  soon  as  the  Chinese  peoj^le  perceive  that  the 
new  coin  is  practically  equal  in  value  to  gold  and  is,  in  consequence, 
not  subject  to  the  depreciation  wliich  they  have  experienced  of  late  in 
silver,  they  will  be  much  more  ready  to  accept  it  and  hold  it  for  regu- 
lar investment  than  if  it  were  merely  a  silver  coin  still  subject  to  the 
fluctuations  of  the  metal.     Indeed,  there  is  a  possibility,  altliough  one 


90        GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

that  would  in  no  way  prove  an  evil,  that  the  coin  might  for  a  consider- 
able time  be  hoarded  by  many  Chinese  as  they  would  hoard  gold.  If 
a  silver  coin  were  generally  circulated  throughout  China  before  it 
were  placed  on  a  gold  basis,  it  would  not  give  this  confidence.  Be- 
sides, there  would  be  a  considerable  danger  of  the  issue  being  so  large 
that  when  an  effort  was  made  to  place  it  on  a  gold  basis  there  would 
result  the  necessity,  as  was  the  case  in  India,  of  a  relative  contraction 
in  the  currency  as  compared  with  the  business  demand  which  would 
produce  the  ill  effects  of  falling  jjrices  already  mentioned.  If  the 
coinage  were  also  free,  there  would  be  a  likelihood  of  the  melting  of 
the  coins,  of  the  subsequent  recoinage  of  the  metal,  and  so  on,  which 
at  present  exists  and  which  Avould  render  it  practically  impossible  for 
the  Government  to  have  any  accurate  knowledge  as  to  the  amount  of 
coins  in  circulation ;  and  in  consequence  the  difficulties  of  regulating 
and  maintaining  the  system  would  Ije  vastly  increased. 

The  fact  must  be  recognized  also  that  in  any  case  the  new  monetary 
system  must  work  its  Avay  slowly  throughout  China.  The  uwre  physi- 
cal difficulties  of  coining  enough  silver  to  supply  the  needs  of  400,000,- 
000  people  or  more  will  make  it  certain  that  several  years  will  elapse 
before  there  can  be  a  national  system  of  any  kind  which  shall  be  gen- 
erally employed  throughout  China.  If,  therefore,  it  is  proposed  to 
have  a  national  system  thoroughly  introduced  before  it  is  placed  on  a 
gold  parity,  there  nuist  be  a  delay  of  many  years  before  even  the  treaty 
ports  and  foreign  countries  could  get  the  benefit  of  stable  exchange. 
On  the  other  hand,  if  the  system  is  introduced  on  the  gold  parity,  it 
may,  and  must  in  fact,  be  introduced  first  in  these  treaty  ports  and  in 
other  places  where  exchange  with  foreign  countries  is  common.  These 
benefits  will  be  secured  from  the  l^eginning,  and  then,  as  the  new  coins 
increase  in  number,  they  will  gradually  make  their  way  with  the  aid 
of  the  viceroys  through  the  different  provinces  into  the  interior,  and 
the  system  can  doubtless  be  completed  in  its  final  form  in  substan- 
tially the  same  length  of  time  that  it  would  take  to  introduce  the  silver 
currency  throughout  the  country,  even  though  it  were  not  on  the  gold 
basis.  The  difficulties  of  the  maintenance  of  the  coins  at  par  through- 
out the  country  will  be  discussed  later. 

The  difficulty,  then,  of  the  Chinese  people  becoming  accustomed  to 
the  use  of  the  new  coins  would  be  met  as  readily  under  the  one  plan  as 
under  the  other  by  the  mere  physical  impossibility  of  coining  the 
silver  rapidly  enough,  unless  special  efforts  were  made  to  hire  foreign 
mints  to  do  the  work,  and  the  j^eople  would  become  the  more  reatlily 
accustomed  to  the  new  system  if  it  were  on  the  gold  basis,  inasmuch  as 
the  l)enefits  to  them  would  be  greater. 

The  opposition  of  individual  bankers  and  the  hostility  of  local  offi- 
cials, if  such  were  found,  can  also  probably  be  met  by  the  method 
employed  in  the  introduction  of  the  system.  It  would  probably  be 
best  to  begin  first  in  perhaps  only  part  of  the  treaty  ]:>orts  and  larger 
cities,  say  in  Peking,  Tientsin.  Shanghai,  Hankow,  and  Canton,  and 
the  country  adjoining.  Owing  to  the  form  of  government  in  China, 
these  cities,  with  the  country  immediately  adjoining,  can  be  consid- 
ered practically  as  territorial  units,  and  the  system  might  be  started 
in  them  as  if  they  were  independent  territories.  Possibly  it  Avould  be 
best  to  begin  for  a  few  months  in  the  province  of  Chili  alone,  to  get 
the  right  method  worked  out  there.  As  soon  as  a  sufficient  number 
of  coins  were  ready  to  meet  a  noteworthy  part  of  the  monetary  needs 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  91 

of  the  comnnmity,  say  -2;")  por  cent,  they  niiirht  be  introduced,  the 
Governnient  makino-  tlieni  receivable  at  their  par  vahie  in  })aynient  of 
all  public  obi iirat ions,  and  even,  if  it  seemed  desirable,  njakin^i;  the 
payment  of  these  obliiJ^ations  in  the  new  coins  compulsory.  Under 
those  circumstances  the  (xOA^ernment  should  also  ])rovide  in  those 
cities  a  sufficient  number  of  exchang'e  agents  of  tried  probity,  so  that 
the  native  Chinese  who  had  taxes  to  pay  could  bring  their  copper 
cash  or  their  silver  sycees  or  Mexican  dollars  to  these  agents,  secure 
the  new  coins  at  fair  rates,  and  then  immediately  use  them  in  the  pay- 
ment of  their  oliligations  due.  In  this  way  they  would  see  at  once 
the  suj)erior  value  of  the  new  money  in  the  payment  of  obligations; 
they  would  know  that  they  could  alwa^'s  be  employed  for  this  pur- 
pose, and  they  would  in  conseciuence  not  hesitate  to  receive  them. 

Furthermore,  it  would  doubtless  be  wise  for  the  Government  to 
employ  as  exchange  agents  the  European  bankers  and  the  native 
b.ankers  who  might  be  in  this  way  properly  compensated  for  work 
done  for  the  Governnunit  and  thus  a  source  of  profit  might  be  created 
Avhich  would  tend  to  remove  the  opposition  which  they  might  other- 
wise make.  Indeed,  if  the  Government  were  itself  making  a  profit 
from  the  seigniorage  of  10  to  '20  per  cent,  it  could  well  afi'ord,  if,  for 
political  reasons,  it  seemed  desirable,  to  pay  a  rather  high  commission 
for  this  work.  Even  if  they  should  wish  to  do  so,  as  has  been  some- 
times said,  it  would  not  be  possible  for  the  local  officials  to  take  an 
unfair  advantage  of  the  exchange  of  the  old  money  into  the  new  coins, 
provided  the  Government  started  the  reform  in  small  territories  like 
the  cities  indicated  and  established  directly  its  exchange  agents  whom 
it  could  trust.  The  terms  of  the  exchange  ought  to  be  made  so  public 
that  it  Avould  be  comparatively  difficult  for  extortions  of  the  kind 
indicated  to  be  practiced. 

From  these  cities  the  system  should,  of  course,  be  extended  as  rap- 
idly as  possible,  considering  the  necessity  of  meeting  the  needs  for 
coins  and  of  securing  the  proper  governmental  control,  into  the  ad- 
joining provinces  where  the  people  are  already  accustomed  to  coin, 
and  where  the  viceroys  and  other  local  officials  would  be  most  in  favor 
of  the  new  plan ;  and  then,  gradually,  it  should  be  extended  from 
province  to  province  into  the  interior.  The  people  in  the  coast  prov- 
inces now  accustomed  to  the  use  of  the  Mexican  or  British  dollar,  as  the 
experience  of  Russia  in  Boukhara,  of  the  English  in  Hongkong,  of  the 
Philippines,  of  Japan,  and  of  British  India  shows,  would  very  rapidly 
learn  the  use  of  the  new  coin  whose  par  value  was  above  its  metal 
value.  The  people  in  the  interior  not  accustomed  to  the  use  of  coin 
at  all  would  gradually  gain  that  new  custom  through  the  possibility 
of  paying  their  governmental  obligations  in  them  at  once,  and  that  in 
such  a  way  that  they  would  be  freed  from  the  oppressive  charges  of 
the  money  changers,  and  would  thus  be  led  to  see  promj^tly  the  advan- 
tages of  the  new  coins. 

While,  speaking  generally,  the  European  bankers  have  expressed 
sympathy  with  the  plan  for  the  adoption  of  a  new  monetary  system 
for  China,  it  is  recognized  that  the  adoption  of  a  system  on  the  gold 
standard  would,  of  course,  soon  lessen  their  profit  from  an  exchange 
business.  AMiile  far-sighted  bankers  are  not  likely  to  place  obstacles 
in  the  way  of  such  a  reform,  since,  in  the  long  run,  the  plan  would 
probably  prove  profitalile  to  them,  as  well  as  from  the  fact  that  they 
would  at  any  rate  hardly  openly  oppose  such  a  great  economic  benefit 


92  GOLD    STANDARD   IN    INTERNATIONAL    TRADE. 

to  the  country  as  a  whole,  even  though  it  were  somewhat  detrimental 
to  their  individual  interests,  it  may  be  worth  while  to  indicate  Avhat 
the  etfect  of  such  a  system  would  probably  be  on  the  business  of  the 
foreign  bankers.  There  is  every  reason  to  believe  that,  although 
there  would  be  loss  from  a  fixed  exchange,  there  would  be  enough 
increased  business  in  the  nature  of  loans  and  discounts  to  oifset  this 
loss.  In  India  it  is  stated  that,  although  the  profits  from  exchange 
business  have  fallen  off  since  the  stability  of  exchange  has  been  prac- 
tically secured,  the  bankers  have  increased  quite  decidedly  their  loans. 
In  Japan  it  is  stated  by  one  of  the  great  bankers  that  since  the  intro- 
duction of  the  gold  standard  there  their  profits  have,  on  the  Avhole, 
doubled  in  that  country.  It  is  scarcely  to  be  expected  that  so  great 
a  benefit  could  come  to  bankers  in  China  on  account  of  the  different 
methods  of  doing  business.  Still  it  is  probal)le  that  within  a  few 
years  a  considerable  increase  of  gains  over  losses  would  be  secured. 
In  JNIexico  some  of  the  largest  exchange  l^ankers,  whose  profits  for  the 
last  few  years  from  exchange  have  been  veiy  large,  are  ready  to  take 
the  risk  of  their  loss  because  of  the  certainty  of  new  foreign  invest- 
ments for  which  they  might  readily  become  the  agents.  Moreover, 
in  the  case  of  foreign  investments  the  banks  would  naturally  become 
the  agents  and  organizers  of  business  enterprises,  etc.,  to  a  degree 
which  would  bring  them  large  profits.  From  all  these  sources,  and 
from  others  wliich  Avill  readily  occur  to  the  banker,  the  far-sighted 
banker  would  be  certain  that  in  the  long  run  not  only  the  country  as 
a  whole,  but  also  his  bank,  would  gain. 

4.  NEED  OE'  expert  ASSISTANCE. 

Inasmuch  as  China  has  few,  if  any,  men  who  have  been  thoroughly 
trained  in  the  organizatioji  and  management  of  monetary  systems  on 
the  European  or  American  ])lan,  in  order  to  secure  the  sound  manage- 
ment of  any  new  system,  it  would  seem  best  that  foreign  experts  l)e 
placed  in  charge  of  the  mints,  and  be  given  a  general  supervision  of  the 
monetary  system  as  a  whole.  Of  course,  by  far  the  largest  part  of 
the  work  would  be  done  b}'^  Chinese,  and  the  foreigners  would  hold 
their  positions  as  appointees  of  the  Chinese,  Government;  but  it 
Avould  be  absolutely  necessary,  in  order  to  secure  the  requsite  skill 
and  confidence  in  success,  that  they  be  given  a  large  measure  of  dis- 
cretion in  management,  at  least  for  the  first  few  years. 

In  order  to  avoid  as  far  as  possible  international  jealousy,  it 
would  doubtless  be  wise  for  the  few  foreigners  who  would  l)e  needed 
to  organize  and  manage  the  system  at  first  to  be  selected  from  differ- 
ent nationalities;  but  it  would  also  doubtless  be- best  for  China,  as 
well  as  for  the  success  of  the  system,  that  they  be  not  in  any  way 
representatives  of  their  governments.  Foreigners  ajjpointed  should 
be  exjicrts  of  such  standing  that  they  would  have  the  confidence  of 
business  men,  both  Chinese  and  foreign,  and  of  all  the  governmerits. 
As  Chinese  ap])ointees  they  should  see  to  it  that  the  interests  of  China 
are  fully  cared  for  and  protected,  and  to  this  end,  of  course,  they 
should  give  every  degree  of  publicity  to  the  way  in  A\diich  their  work- 
is  carried  on. 

It  has  even  been  suggested  as  a  Avise  plan  that  the  controller  of  the 
currency  should  not  meivly  make  monthly  i-eports  in  detail  of  the  con- 


GOLD  STANDAKD  IN  INTEKNATIUNAL  TKADE.        93 

ditiou  of  tlie  ourreiu'y,  includiiio:  anioiiiits  in  circulation,  loans,  drafts 
on  f()rci<;n  credits,  and  other  iiiattci-s  such  as  are  nsiially  i)iiblished  by 
European  iiovenmients,  hut,  further,  that  the  Chinese  (ioverniiient 
shouhl  N'oluiitarily  open  the  conti'oller's  accounts  at  reasonable  times 
to  inspection  by  accredited  rei)reseutatives  of  the  powers  interested  in 
the  indenniity.  These  accounts  would  be  only  those  usually  published 
and  would  not  be  those  of  the  fiscal  system  in  general,  but  only  those 
connected  with  the  monetary  system.  Of  course  no  power  would  have 
any  right  to  make  such  a  denumd,  but  inasnnich  as  the  success  of  the 
system  depends  upon  public  conhdence,  the  Chinese  Government  could 
perhai)s  in  no  other  way  so  easily  and  so  wisely  secure  confidence  as  by 
A'oluntarily  giving  this  right  of  inspection  to  the  powers.  China 
might  well  also  l)e  willing  that  they  should  make  any  suggestions  and 
reconnnendations  regarding  the  management  of  the  system  which  they 
saw  fit,  although,  of  course,  the  foreign  experts  in  charge  of  the 
system  and  the  Chinese  Government  itself  should  not  be  placed  under 
the  slightest  obligation  to  follow  such  suggestion^. 

It  is  clear,  of  course,  that  the  monetary  system  as  such  should  be 
kej3t  entirely  separate  from  the  fiscal  system.  The  income  of  the  State 
from  taxes  of  various  kinds  should  l)e  kept  entirely  sej^arate  from  the 
income  in  connection  with  the  seigniorage  of  the  monetary  system, and 
the  expenses  of  the  State  in  every  way  excepting  those  in  connection 
Avith  the  monetary  system  would  also  be  kept  apart,  so  that,  while  the 
details  of  the  monetary  system  should  be  made  public,  these  would  in 
no  w'ay  give  any  person  information  regarding  the  fiscal  system  of  the 
country  beyond  that  which  would  normally  be  secured  in  other  ways. 

It  is  believed  that  while  a  reasonable  degree  of  foreign  assistance 
must  be  secured  by  China  in  order  to  make  the  success  of  the  new 
monetary  system  secure,  it  would  be  very  unwise  for  the  foreign  gov- 
ernments as  such  to  take  any  part  in  the  matter  or  to  take  any  super- 
vision over  the  system  beyond  the  inspection  which  might  be  offered 
by  the  Chinese  Government  itself.  The  governments  would,  beyond 
any  question,  find  it  extremely  difficult,  if  not  even  absolutely  impos- 
sible, to  work  in  harmony  in  connection  with  a  matter  so  important 
and  so  complicated  as  that  of  a  monetary  system. 

5.  OUTLINE  OP'  SYSTExM. 

While  the  details  of  the  management  of  a  monetary  system  must 
be  determined  in  part  as  the  system  itself  develops,  the  fundamental 
pi-inci]iles  of  such  a  system  must,  of  course,  be  laid  down  in  advance. 
AMiether  the  monetary  system  of  China  should  be  begun  at  once  Avith 
all  the  coins  on  a  fixed  jjarity  with  gold,  or  whether,  as  has  been  rec- 
ommended by  a  minority  of  the  commissioners  who  have  discussed 
the  plan  of  a  system,  silver  coins  to  circulate  at  their  bullion  value, 
should  first  be  introduced  and  afterwards  be  placed  on  a  parity  with 
gold,  the  opinion  is  unanimous  that  when  the  syst-em  is  completed  all 
the  coins  should  be  maintained  at  a  parity  with  gold.  In  such  a 
system  there  must  br  adopted  l)y  the  Chinese  Government  a  standard 
unit  of  value.  This  should  consist  of  a  fixed  number  of  grains  of 
gold  of  a  fixed  degree  of  fineness,  so  that  its  nature  can  not  be  ques- 
tioned. How  large  this  standard  unit  should  be,  is  a  matter  to  be 
determined  in  the  interests  of  China  herself.     The  chief  purpose  of 


94  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

establishing  a  gold  unit  as  a  standard  is  to  facilitate  trade,  and  that 
largely  with  foreign  countries.  In  consequence  the  unit  should  l)e 
of  such  a  nature  that  it  will  render  the  keeping  of  accounts  in  trade 
matters  as  simple  as  possible.  If  the  different  nations  with  Avhich 
China  trades  had  the  same  unit,  it  would  probably  be  wise  for  China 
to  adopt  that  unit.  Inasmuch,  however,  as  the  monetary  units  of 
Great  Britain,  France,  the  United  States,  Russia,  Japan,  and  Ger- 
many are  all  different,  there  is  no  one  which  would  give  absolute 
harmony.  The  next  point  of  union  with  these  monetary  systems 
seems  to.be  for  China  to  adopt  as  a  unit  one  that  is  somewhat  closely 
related  in  value  to  the  American  50  cents,  the  English  2  shillings,  the 
Japanese  yen,  the  Russian  rouble,  the  French  2^  francs,  and  the  (ier- 
man  2  marks.  If  China  is  to  adopt  any  one  of  these,  it  would  seem 
natural  that  she  should  choose  one  of  a  country  with  Avhich  her  rela- 
tions are  close  and  with  which  her  trade  is  large  and  increasing. 

Many  nations,  however,  in  order  to  emphasize  their  own  separate 
sovereignty,  in  part,  and,  in  part,  in  order  to  check  the  circulation  of 
foreign  coins  of  equal  weight  in  their  own  country,  have  thouglit  it 
desirable  to  establish  their  monetary  unit  at  a  weight  slightly  differ- 
ent from  that  of  other  countries.  The  countries  of  the  Latin  Union 
of  course  form  an  exception  to  this  rule.  If  China  were  to  adopt  a 
similar  plan,  she  might,  Avhile  adopting  n  unit  not  exactly  the  same  as 
any  of  those  suggested,  still  select  one  that  is  nearly  allied  to  the 
values  already  suggested,  so  that  in  ordinary  retail  dealings  there 
Avould  be  convenience  of  reckoning.  In  the  largei'  transactions, 
owing  to  exchange  conditions,  there  must  always  be  slight  fluctua- 
tions in  rates  of  exchange  with  gold,  a  circumstance  which  makes 
somewhat  complex  bookkeeping,  so  that  a  slight  variation  of  the  unit 
from  any  of  the  standards  mentioned  would  be  of  relatively  slight 
importance. 

It  is  not  at  all  necessary  that  this  standard  gold  unit  of  value  be 
coined  at  all.  It  might  be  uncoined,  like  the  Japanese  one-yen  piece 
or  there  might  be  no  coinage  whatever  of  either  this  unit  or  any  of 
its  multiples,  as  is  the  case,  for  example,,in  the  Philippines  with  their 
standard  gold  peso.  So  long  as  the  unit  is  legally  fixed  and  so  long 
as  the  Government  will  maintain  the  minor  coins  at  a  parity  with  this 
quantity  of  gold,  it  is  not  essential  that  the  coins  be  provided. 

It  is  probably  desirable,  hoAvever,  that,  Avhile  primarily  China 
should  maintain  as  its  chief  circulating  medium  sih^er  and  copjjer 
coins  at  parity  Avith  gold,  there  should  be  also  some  coinage  of  gold. 
It  is  possible  that  in  the  course  of  time  the  price  of  silver  might  rise 
so  that  there  Avould  be  the  jiossibility  of  the  silver  coins  becoming 
more  valuable  than  the  gold.  Under  those  circumstances  a  check 
Avould  be  given  to  this  tendency  if  provision  Avere  made  for  the  free 
coinage  of  suitable  pieces  of  gold,  presumably  nuUtiples  of  the  stand- 
ard unit,  fiA'e,  ten,  and  twenty,  such  coins  to  be  furnished  on  demand 
either  Avith  or  Avithout  a  reasonabh^.  coinage  charge.  Under  ordinary 
circumstances,  of  course,  there  Avould  be  no  demand  Avhatever  for 
these  coins,  inasmuch  as  sih^er  Avould  be  more  acceptable  to  the  peoj)le, 
more  in  accordance  Avith  the  conditions  of  the  country,  and  more  prof- 
habk;  to  the  Government.  It  might  be  Avell,  hoAvever,  eventually,  in 
order  to  secure  the  effect  on  the  feelings  of  the  people  Avhich  an  occa- 
sional use  of  gold  coins  might  give,  for  the  Government  to  coin  some 


GULD    STANDARD    IN    INTPHiNATIONAL    TRADK.  V)5 

^ol(I  on  fjovornnuMital  account,  and  fi'oni  time  to  time  and  as  suitable 
occassion  otFei's  to  pay  out  some  of  these  coins  in  the  nieetin<r  of  (Jov- 
ernment  ohl ligations. 

Owing  to  the  economic  condition  of  China,  it  is  of  course  desirable 
that  the  chief  money  of  circulation  be  composed  of  silver  and  copper. 
In  a  country  Avhere  wages  are  often  not  more  than  seven  or  eight 
dollars  a  month  in  American  money,  and  where  they  are  sometimes 
not  more  than  from  two  to  five  dollars  a  month,  and  Avhere,  natui'ally, 
the  standard  of  li\'ing  nnist  be  on  the  same  scale,  it  is  evident  that 
there  would  l)e  A'ery  little  use  for  gold  coins  among  the  Chinese  people. 
The  one  kind  of  coin  that  is  really  current  pretty  generally  through- 
out China  is  the  eop})er  cash.  This  may  l)e  said  to  be  the  coin  that 
has  been  developed  to  meet  the  needs  of  the  people  in  their  daily 
intercourse.  In  larger  transactions  they  may  nse  silver  by  w^eight, 
or,  in  some  ])laces,  in  coins.  AVhen  one  reflects  that  these  copper 
coins,  which  have  l)een  de\'eloped  to  meet  business  conditions,  are 
worth  each  in  the  neighborhood  of  one-twentieth  of  an  American  cent, 
one  realizes  how  minute  the  transactions  may  be.  The  current  coins, 
then,  must  l)e  silver  or  c()p])er.  The  coin  which  shall  represent  th<^ 
unit  of  value  of  course  will  be  silver,  although  it  will  have  a  fixed 
gold  value.  These  silver  coins  which  should  be  maintained  at  ])ar 
with  the  gold  unit,  should  be  given,  of  course,  an  appropriate  device 
suitable  to  China,  and  shoidd,  presumably,  for  convenience,  be  about 
the  size  of  the  Mexican  dollar. 

It  has  been  urged  by  some  that  a  better  coin  would  contain  about 
the  quantity  of  sih^r  contained  in  the  Ilaikwan  tael,  which  is  nearly 
one-half  larger  than  the  Mexican  dollar.  Inasmuch  as  the  Chinese 
are  accustomed  to  reckoning  in  taels  in  most  sections  of  the  country, 
it  would  doubtless  be  a  convenient  unit  so  far  as  the  customs  of  the 
people  are  concerned.  The  chief  objection,  naturally,  is  that  the 
coin  is  too  large  for  convenient  use.  It  would  be  generally  agreed 
that  the  Mexican  dollar  is  al)out  as  large  a  coin  as  can  be  most  con- 
veniently handled  in  ordinary  business  dealings.  There  is  no 
special  reason  wdiy  one  name  should  be  given  to  this  coin  rather  than 
another,  and  it  might  equally  well  be  called  tael  as  dollar.  Of 
course  whatever  name  were  given  to  the  unit,  its  relative  value  to 
the  Ilaikwan  tael  and  to  the  Mexican  dollar  would  be  fixed  by  law. 
The  value  would  be  determined  somewhat  arbitrarily  by  the  gold 
unit  Avhich  was  adopted,  but  it  is  desirable  that  the  bullion  value  of 
the  coin  be  somewhat,  perhaps  10  or  15  per  cent,  less  than  the  parity 
value.  Besides  this  silver  coin,  which  shall  have  the  name  of  the 
standard  gold  unit  and  Avhich  shall  be  the  chief  monetary  unit  in 
circulation,  there  should  be  coined,  of  course,  subsidiary  and  minor 
coins  of  suitable  Aveight  and  value,  presumably  halves,  quarters, 
fifths,  tenths,  twentieths,  fiftieths,  and  hundredths  of  the  monetary 
unit,  at  least,  and  in  all  proba))ility  coins  of  still  less  value,  perhaps 
even  as  small  as  a  thousandth  part  of  the  unit.  Probably  it  would 
be  well  to  have  the  larger  minor  silver  coins  pro])ortional  in  weight 
to  the  standard,  although  as  they  are  less  in  value  the  danger  of 
counterfeiting  or  of  melting  would  not  be  so  great  provided  they 
w'ere  made  even  a  little  lighter.  The  minor  coins  of  the  lower  denom- 
inations, made  of  nickel  and  copper,  might  be  made  of  such  a  value 
as  metal  as  to  yield  a  large  profit  as  seigniorage  to  the  Govermnent. 


U6  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

0.  MAINTENANCE  OF  PARITY  WITH  (iOLD. 

Perhaps  the  most  difliciilt,  as  well  as  the  most  important,  question 
in  connection  with  the  new  monetary  system  is  that  of  maintaining 
the  parity  of  these  silver,  nickel,  and  copper  coins  with  gold.  Accord- 
ing to  the  best  reports  that  can  be  secured,  during  the  last  twenty 
years  the  silver  coins  have  fallen  in  their  relations  to  gold  some  50  per 
cent.  The  copper  coins  have  likewise  depreciated,  although  to  a 
much  less  degree,  the  estimate  being  about  82  or  33  per  cent. 

In  practically  all  civilized  countries  the  fractional  coins  of  copper 
and  nickel  are  maintained  at  a  parity  with  the  monetary  unit  only 
by  the  limitation  of  their  coinage  and  their  acceptance  by  the  Govern- 
ment. They  are  usually  of  a  very  light  weight  as  compared  with 
their  value,  so  that  there  is  no  temptation  to  melt  them  doAvn.  Their 
value  being  small,  it  would  ordinarily  not  pay  anyone  to  counterfeit 
them,  as  the  profit  woukl  be  very  small  unless  expensive  machinery 
were  emplo^^ed,  and  this  would  be  likely  to  lead  to  detection.  It  is 
comparatively  easy  for  the  Government,  by  noting  business  condi- 
tions and  meeting  requests  from  business  men  and  bankers,  to  supply 
the  needs  of  the  country  for  these  coins  reasonably  well  without  spe- 
cial danger  of  overissue  so  that  the  coins  would  depreciate  in  value. 

The  conditions,  however,  are  quite  different  regarding  the  silver 
coins,  especially  those  of  the  larger  denominations.  These  naturally, 
in  a  country  like  China,  become  the  means  of  making  payments  in  all 
larger  transactions,  and  are  used  not  merely  as  a  medium  of  exchange, 
as  are  fractional  coins,  but  to  a  very  much  greater  extent  than  the 
small  coins  that  are  used,  especiallj^  in  countries  like  India  and  China, 
as  a  means  of  storing  values  for  a  considerable  length  of  time  when 
exchanges  are  not  demanded.  Inasmuch  also  as  these  silver  coins 
represent  the  unit,  and  should  probably  be  made  legal  tender  for  un- 
limited amounts,  while  fractional  coins  are  made  legal  tender  for  only 
very  small  amounts,  they  will  come  to  represent  in  the  minds  of  the 
people  the  standard  by  which  values  are  measured  more  than  will 
any  of  the  other  coins.  The  methods  to  be  adopted  are,  of  course,  in 
part  the  same,  but  further  steps  may  also  need  to  be  taken. 

The  principal  measures  to  be  recommended  are  the  following: 

1.  The  amount  of  coinage  should  be  strictly  limited  and  kept  en- 
tirely within  governmental  control.  In  the  case  of  the  fractional 
coins,  it  has  been  said  that  this  measure  alone  is  sufficient  to  maintain 
the  parity.  It  is  probable,  likewise,  that  in  the  case  of  the  larger  silver 
coins  a  strict  limitation  of  the  quantity  issued  to  the  proper  denumds 
of  business  woukl  be,  on  the  whole,  the  most  efficient  and  the  most  im- 
])ortant  of  the  means  for  nuiintaining  the  parity.  There  is  in  every 
country  a  certain  amount  of  nujuey  work  to  be  done  by  each  class  of 
money.  There  are  a  certain  number  of  payments  to  be  made  in 
effecting  exchanges.  Some  payments  are  for  small  amounts,  whic;h 
demand  a  supply  of  copper  cash.  All  the  larger  transactions  will  de- 
mand either  the  miit  coin  or  multiples  of  the  unit  for  their  payment, 
iilthough,  of  course,  a  great  saving  of  the  metal  coins  is  made  by  the 
use  of  bank  notes,  checks,  bills  of  exchange,  book  accounts,  and  other 
common  devices.  If  the  amount  of  coins  issued  should  be  at  all 
beyond  the  business  needs  of  the  coinitry,  so  that  there  is  not  a  con- 
stant and  steady  denumd  for  practically  every  coin  in  circulation, 


GOLD   STANDARD    IN    INTERNATIONAL   TRADE.  97 

there  will  be  a  tendency  for  the  value  to  depreciate,  until  eventually, 
if  the  supply  increases,  the  value  will  fall  until  it  reaches  the  value  of 
the  bullion  contained  in  the  coin.  A  strict  limitation,  then,  of  the 
sui)i)ly  l)v  the  Government  to  the  needs  of  business  is  to  be  considered 
the  first  and  most  important  method  of  maintaining  the  parity. 

2.  As  the  value  of  the  coin  is  to  be  determined  by  the  relations  of 
the  demand  to  the  su])ply,  it  is  of  almost  equal  consequence  that  the 
(government  itself  establish  a  normal  steady  demand,  and  by  its  oAvn 
readiness  to  receive  the  coins  for  payments  due  to  the  Government 
manifest  openly  and  indisputably  its  confidence  in  the  value  of  the  coin. 
The  second  measure  to  be  employed,  then,  is  that  the  Government 
agree  to  accept  the  coins  at  their  full  parity  value  in  payment  of  all 
obligations  due  to  it.  How  large  a  demand  this  may  create  as  com- 
l)ared  with  the  demands  of  private  business  will  vary,  of  course, 
largely  in  each  separate  country.  It  is  probably  true  that  in  many 
countries  the  demand  of  the  government  in  the  course  of  the  year 
equals  25  per  cent  of  the  entire  amount  required  to  satisfy  the  needs 
of  business.  In  some  countries  even,  where  business  is  comparatively 
slack  and  where  the  system  of  barter  is  somewhat  extensive,  the  pro- 
portion might  be  much  larger,  whereas  in  other  countries  it  might 
well  be  less.  Even  this  demand,  however,  is  seen  to  be  so  large  that 
this  method,  in  connection  Avith  the  first,  would,  in  most  countries 
where  the  people  had  confidence  in  the  integrity  of  the  government, 
be  sufficient  to  maintain  the  parity  of  the  coins  with  gold  without  any 
further  steps. 

3.  It  is  usual,  however,  to  make  the  silver  coins,  especially  in  coun- 
tries where  silver  coins  are  the  ones  most  common  in  circulation,  legal 
tender  in  the  payment  of  ])rivate  as  well  as  of  public  debts.  The 
small  subsidiary  coins  Avould  naturally  be  legal  tender  for  only  a 
small  amount,  say  $10;  the  silver  unit,  however,  Avould  be  legal  tender 
for  any  amount.  This  still  more,  of  course,  strengthens  the  sources 
of  demand  Avhich  tend  to  maintain  the  value. 

4.  The  further  means  which  is  usually  advocated,  and  by  many 
believed  to  be  the  onh^  sure  means  of  maintaining  the  parity,  is  that 
the  Government  agree  to  redeem  the  silver  coins  by  the  pajniient  of 
gold,  practically  on  demand.  AVith  certain  important  qualifications 
this  general  statement  may  be  accepted.  It  is  not,  however,  neces- 
sary that  the  redemption  always  be  made  on  the  sjjot  and  in  gold 
coins.  The  method  of  redemption  will,  of  necessity,  depend  upon  the 
business  customs  of  the  country  in  fiuestion. 

In  a  country  like  China,  where  the  ordinary  medium  of  circulation 
is  silver,  there  is  no  business  need  whatever  for  gold  money,  to  be 
used  within  the  country  itself.  If  gold  is  required  for  purposes  of 
manufacturing  jewelry  or  other  similar  needs,  this  is  not  a  question 
which  concerns  the  monetary  systeui  or,  generally,  the  needs  of  busi- 
ness. Jewelers  needing  gold  for  any  such  purjiose  should  supply 
their  own  Avants  as  much  as  the  manufacturers  of  steel  tools  shoTild 
provide  their  raAv  materials  Avitliout  depending  on  the  GoA^u'nment. 
The  legitimate  business  demand  in  connection  Avitli  the  currency 
Avhich  calls  for  gold  is  a  demand  only  for  the  purpose  of  making  pay- 
ments abroad  in  a  gold-standard  country.  For  this  purpose  not  gold 
within  the  country  itself  is  needed,  but  rather  a  gold  credit  in  the 
country  or  countries  in  Avhich  the  payment  must  be  made.  If  a 
S.  Doc.  12S,  58-3 7 


98  GOLD   STANDAED    IN   INTERNATIONAL   TRADE. 

merchant  in  Shanghai,  witli  a  gold  obligation  to  be  met  in  London, 
comes  to  a  bank  for  the  means  of  paying  his  debt,  he  does  not  wish 
gold  to  ship;  he  wishes,  rather,  an  ordei-  for  the  payment  of  gold  in 
London.  For  the  satisfaction  of  all  proper  business  needs,  therefore, 
in  connection  with  the  monetary  system,  it  would  be  sufficient  on  all 
occasions  if  the  Chinese  Government  were  to  keep  a  gold  credit  in 
Europe  against  which  it  could  sell  bills  of  exchange  whenever  a 
legitimate  demand  came  from  business  men  for  this  purpose.  This 
is  practically  the  plan  that  has  been  followed  by  Holland  for  the  past 
thirty  years,  and  it  is  the  plan  which,  at  length,  British  India,  after 
several  years  of  eifort  in  that  direction,  has  adopted.  In  Holland, 
for  example,  the  national  bank,  which  acts  as  the  Government  agent 
in  the  regulation  of  tlie  currency,  does  not  agree  to  pay  out  gold  on 
demand  to  all  who  present  silver  or  bank  notes.  The  silver  gulden 
in  Holland  is  not  redeemable  in  gold.  On  the  other  hand,  the  Gov- 
ernment has  for  many  j^ears  declared  itself  ready  to  give  gold  in 
exchange  for  silver  gulden  or  other  money  of  the  country,  provided 
that  gold  were  needed  for  the  purpose  of  paying  obligations  due 
abroad.  This  qualified  redemption  alone,  a  redemption  which  is 
comparatively  seldom  called  for,  taken  together  wath  the  Government 
control  of  coinage  and  the  high  credit  of  the  Dutch  Government,  has 
been  sufficient  to  maintain  the  parity  of  the  silver  coins  during  a  long 
period  of  years,  even  in  times  of  commercial  pressure. 

In  order  to  maintain  the  parit3%  however,  it  is  not  necessary  that  the 
Government  fiold  itself  ready  to  meet  all  demands  for  gold  for  export 
purposes  or  for  the  payment  of  foreign  obligations.  Without  endan- 
gering the  parity  of  the  coins  in  all  internal  transactions  and  without 
in  any  way  injuring  the  business  of  the  country,  it  would  be  sufficient 
if  the  Chinese  Government  were  to  put  its  gold  reserve  at  the  service 
of  business  men,  not  in  the  first  instance  at  any  time  that  the  demand 
is  made  (whj^  should  the  Government  enter  into  competition  with  the 
banks?),  but  only  after  the  banks  and  other  financiers  had  been  unable 
to  meet  the  ordinary  demands  for  gold  payments  abroad,  as  would  be 
shoAvn  by  the  increase  in  the  rates  charged,  in  the  local  money,  for  for- 
eign bills  of  exchange. 

"VMienever  it  becomes  necessary  for  a  country  to  meet  the  obligations 
which  it  owes  abroad,  it  is  usual  for  those  obligations  in  the  last  resort 
to  be  met  by  the  goods  that  on  the  whole  can  be  shipped  the  cheapest. 
If  there  is  a  large  supply  of  money  in  a  countr}^  whose  credit  is 
imquestioned,  it  may  well  he  that  the  gold  supply  in  that  country  will 
be  so  large  that  it  will  be  chea^:)er  to  ship  gold  abroad  to  settle  balances 
due  than  to  force  down  the  prices  of  some  other  j^roduct  in  order  to 
make  that  the  most  available  connnodity  for  shipment.  Whether  the 
money  metal  in  a  country  is  the  one  commodity  that  can  most  readily 
be  spared  to  meet  the  balance  of  payments  due  will  depend  to  a  con- 
siderable extent  upon  the  quantity  of  money  in  circulation  as  com- 
pared with  the  needs  of  business.  If  money  is  really  scarce  in  the 
country  and  is  a  metal  money,  it  is  probable  that  its  value  Avill  be  so 
great  in  terms  of  goods;  that  is,  in  other  words,  the  price  of  goods  in 
terms  of  money  will  be  so  low  that  the  goods  will  be  shipjjcd  abroad 
rather  than  the  money  itself.  If,  on  the  other  hand,  either  through 
ihe  slackness  of  trade  or  through  an  excessive  coinage,  the  su])ply  of 
gold  money  becomes  large  in  comj^arison  with  the  demand  for  its  use 


GOLD    STANDARD    IN    INTP:RNATI0NAL    TRADE.  99 

within  (lu>  couiitrv,  ])ri(vs  of  ooods  rise,  the  nilo  of  intcrost  falls,  peo- 
ple can  nioi-e  readily  ii'el  i>"ol(l  than  £>;()ods,  the  rates  of  e.\i'liani>;e  in 
terms  of  the  local  money  rise,  and  money  is  more  readily  ship[)ed  for 
the  jiayment  of  ol)li<>:ati()ns  or  for  investment.  If  a  money  which  is 
not  ii'i'ld,  l)ut  silver  or  ]>aiK'r,  is  nsed,  and  becomes  excessive,  prices  of 
<rol(l  hills  of  exchan<re  in  terms  of  the  silver  or  paper  money  will  rise 
as  do  the  j^rices  of  other  o^oods,  and  gold  will  he  exported. 

In  a  country  like  China,  therefore,  it  w-oiild  be  sufficient  if  the  Gov- 
ernment were  to  announce  that  it  would,  under  ordinary  circum- 
stances, expect  the  bankers  and  other  business  men  to  supply  the 
needs  of  those  who  require  gold  or  siher  for  the  payment  of  olSliga- 
tions  abroad,  and  that  it  would  meet  such  demands  only  when,  owing 
to  the  strong  demand,  the  rates  for  gold  had  risen  considerably 
above  the  normal.  If  the  Government  would  agree  that  whenever 
the  rates  of  exchange  on  Europe  reached  a  high  pries  above  the 
parity  it  would  sell  bills  of  exchange  against  its  gold  reserve  in 
Europe  for  silver  coins  or  other  equivalent  paid  in,  it  would  find  its 
reserve  called  upon  only  when  the  silver  currency  had  become  for 
the  time  being  redundant,  either  on  account  of  the  slackened  demands 
brought  about  by  lessened  trade  or  on  account  of  excessive  coinage. 
If,  for  example,  the  usual  l)anking  rate  on  London  were  about  one  of 
the  new  coins  for  '2  shillings,  the  (xovernment  might  sell  exchange  if 
the  rate  rose  to  1.02  for  2  shillings.  If,  when  money  were  paid  in,  in 
exchange  for  the  foreign  bills  of  exchange,  that  money  were  not 
reissued,  but  were  held  in  the  treasury,  a  scarcity  of  currency  would 
thus  be  brought  about  which  would  soon  make  it  more  profitable  to 
ship  other  goods  to  meet  obligations  rather  than  to  take  from  the 
channels  of  trade  the  money  which  had  thus  ac(]uired  an  added  value. 

"V^lien,  on  the  other  hand,  owing  to  a  stoppage  in  the  coinage  or  to 
an  increase  in  the  demands  for  the  coins  from  an  increase  in  business, 
they  became  relativel}^  scarce,  it  might  well  be  that  business  men 
would  find  it  advisable  to  pay  gold  either  into  the  treasury  of  the 
Chinese  Government  at  home,  or  more  likely  to  the  agents  of  the 
Chinese  Government  in  Europe  or  Amei'ica,  and  to  receive  in  return 
those  silver  coins  in  China  to  meet  their  obligations  there,  or  to  use 
them  for  the  purchase  of  goods  in  the  interior.  I5y  this  means  we 
should  obtain  in  China  a  currency  which  would  be  elastic  so  as  to 
meet  the  fluctuating  demands  of  trade,  and  at  the  same  time  the 
Government  would  find  itself  free  from  all  obligations  except  those 
imposed  upon  it  by  unusual  circumstances  Avhich  rarely  come.  (Cf. 
p.  37.) 

If  the  gold  reserve  were  maintained,  especially  for  the  purpose  of 
maintaining  the  parity,  as  indicated  above,  and  if,  under  ordinary 
circumstances,  the  banks  Avere  to  meet  the  usual  conunercial  needs, 
it  would  s(»em  that  the  reserve  fund  need  not  be  especially  burdensome 
in  quantitv.  In  India,  with  its  circulation  in  round  iHunl)ers  of  per- 
hai)s  1,S06,()()0.000  rupees,  or  £l-iO.OO(),()0(),  it  has  l)een  found  that  a 
gold  reserve  of  consideral)ly  less  than  £10,000,000,  or  8;\  per  cent  of 
the  monetary  circulation,  is  ample  to  meet  all  the  needs  of  business 
for  gohl  export  purposes.  Even  if,  for  a  considerable  period  of  time, 
imports  of  goods  were  considerably  larger  than  exports,  so  that  the 
tendency  would  be  toward  a  strong  demand  for  gold  for  export,  it  is 
scarcely  conceivable  that  a  contraction  of  the  currency  of,  say,  18  or 


100  GOLD    STANDAKD    IN    INTERNATIONAL    TRADE. 

20  per  cent  Avoiild  not  be  sufficient  to  overcome  this  tendency  and  force 
the  prices  of  some  other  goods  so  low  that  they  Avould  be  substituted 
instead  of  gold  as  a  means  for  meeting  foreign  obligations. 

Owing  likewise  to  the  unlikelihood  of  a  gold  reserve  held  abroad 
for  such  purposes  being  frequently  called  lipon,  it  would  doubtless 
be  comparativel}^  easy  for  any  country  desiring  to  maintain  such  a 
reserve  to  secure  on  relatively  easy  terms  gold  credits  against  which 
it  could  draw  to  large  amounts  if  necessary.  Such  obligations,  of 
course,  could  not  be  unlimited  as  regards  quantity,  but  they  might 
be  ample;  they  could  not  be  unlimited  perhaps  as  regards  time,  but 
could  be  renewable ;  and  as  soon  as  a  comparatively  short  experience 
of  a  few  years  had  shown  the  wisdom  of  the  management  of  the  sys- 
tem in  China,  both  the  need  of  such  a  reserve  and  the  difficulty  of 
securing  it  would  be  very  much  lessened. 

There  seems  no  reason  to  doubt  that  by  the  means  indicated  the 
parity  of  silver  coins  in  China  can  be  maintained  absolutely,  so  far  as 
all  local  transactions  are  concerned.  The  fact  that  a  rate  of  exchange 
should  be  charged  for  bills  sold  on  a  gold  reserve  placed  in  foreign 
countries  would  not  affect  the  local  conditions,  even  though  at  times 
that  rate  should  be  quite  high. 

If,  however,  for  the  sake  of  argument,  we  should  grant  that  under 
the  pressure  of  abnormal  conditions  the  parity  might  temporarily  fall 
by  a  small  amount,  1  or  2  per  cent,  even  then  conditions  would  be 
vastly  better  than  they  have  been  for  the  last  few  years,  or  than  they 
could  be  even  with  a  uniform  silver  coin  whose  value  fluctuated  with 
the  value  of  the  metal.  This  is  another  reason  to  be  kept  in  mind  why 
under  any  circumstances  a  determined  effort  should  be  made  to  place 
the  new  silver  coins  on  a  parity  with  gold  from  the  beginning  and 
maintain  them  there. 

7.  THE  ESTABLISHMENT  OF  A  GOLD  RESERVE. 

It  is  extremely  desirable,  in  order  to  maintain  the  confidence  of  busi- 
ness men  in  the  new  monetary  system,  that  practically  at  the  begin- 
ning of  the  work  provision  be  made  for  the  accumulation  of  a  gold 
reserve  which  will  be  sufficient  at  all  times  to  maintain  the  parity  of 
the  new  coins  beyond  question.  How  may  this  gold  reserve  be 
accumulated  ? 

1.  If  the  price  of  silver  were  to  remain  about  where  it  is  at  present, 
and  the  gold  unit  were  made  substantially  equal  in  value  to  the  one 
recommended,  that  is,  to  the  American  50  cents,  the  English  2  shil- 
lings, the  Japanese  yen,  the  Russian  rouble,  etc.,  there  would  be  a 
profit  from  seigniorage  of  some  eight  to  twelve  per  cent  on  silver 
coins.  As  regards  the  minor  coins,  especially  those  of  copper  and 
nickel,  the  seigniorage  profit  would  be  very  nuich  larger.  Beyond 
question  practically  all  of  this  seigniorage  should  be  used  from  the 
beginning  for  the  purchase  of  gold  to  be  used  as  a  reserve. 

2.  It  has  already  been  suggested  that  the  nations  interested  in  the 
war  indemnity  might  well  afford  to  make  some  concessions  to  China 
i:»rovided  she  were  to  establish  a  new  monetary  system  which  would 
give  a  fixed  par  to  exchange  in  business  dealings.  If  they  were  to 
make  the  concession  which  has  been  proposed,  i.  e.,  the  acceptance 
from  China  for  a  period  of  years  of  their  shares  in  the  indemnity  on 


GOLD    STANDARD    IN    INTERN ATIONAL    TRADE.  101 

a  silver  basis,  rosorving-  the  rii>lit  to  call  for  a  (liU'crciicc  Ix^lwccii  llial 
and  payments  on  a  <>()1(1  basis  at  a  later  period,  a  considerable  saving- 
would  be  made  for  China  so  iong  as  the  price  of  silver  does  not  go 
materially  above  its  present  rate.  It  would  seem  entirel}^  proper  for 
the  governments,  if  such  a  concession  were  nuide,  to  insist  upon  it  that 
this  saving  be  used  directly  for  the  establishment  of  a  ncAv  monetary 
system,  in  good  part  at  least  for  the  establishment  of  a  gold  reserve. 

3.  In  all  probability,  however,  if  the  plan  is  carried  through 
promj)tly  for  the  most  imj[)ortant  parts  of  China,  it  will  be  desirable 
for  China  to  make  a  loan  of  considerable  size.  To  that  end  it  will 
be  necessary,  of  course,  for  the  (loverument  to  pledge  specific  reve- 
nues. Either  new  sources  must  be  found  which  can  be  devoted  to 
this  end,  or  some  of  the  present  revenues  must  become  more  produc- 
tive. Persons  most  familiar  with  the  financial  situation  of  China 
are  of  the  opinion  that  a  more  rigid,  businesslike  management  of 
present  sources  of  revenue  wn)uld  result  in  a  considerable  increase, 
and  are  also  of  the  opinion  that  it  is  by  no  means  impossible  to  find 
new  sources  of  revenue  which  will  prove  sufficiently  productive.  It 
is  thought  that  the  peoph^  are  not  taxed  to  any  very  burdensome 
extent,  and  there  is  reason  to  believe  that  a  loan  raised  for  this  pur- 
pose would  soon  result  in  so  great  an  increase  in  the  prosperity  of  the 
country  that  its  burden  would  not  be  felt  at  all,  as  was  the  case  with 
the  loan  of  Egypt  a  few  years  ago  which  so  improved  the  irrigation 
system. 

It  should  be  borne  in  mind  also  that  a  gold  reserve  secured  thus  by 
a  loan  would  be  kept  on  deposit  in  Europe  and  America,  and  would 
doubtless  be  seldom  drawn  against.  The  interest  that  would  thus  be 
paid  to  China  on  current  balances  would  very  materially  reduce  the 
expense  of  the  loan. 

Furthermore,  inasmuch  as  the  loan  is  not  to  be  employed  for  ordi- 
nary uses,  but  is  only  to  be  drawn  against  on  uncommon  occasions,  it 
would  suffice,  if,  instead  of  a  very  large  gold  loan,  part  of  the  sum 
necessary  should  be  simply  in  the  form  of  a  gold  credit  which  might 
be  drawn  upon.  This  gold  credit,  which  w^ould  be  merely  a  right  to 
draw  for  a  specific  maximum  sum,  a  right  which  would  seldom,  if 
ever,  be  used,  could  probably  be  secured  at  a  comparatively  slight 
expense,  i)ro\ided  there  were  reasonable  confidence  in  the  manage- 
ment of  the  monetary  system. 

4.  After  the  reserve  had  once  been  established  in  Europe  and 
America,  provisions  should  l)e  made  for  its  re])lenishment  in  case  of 
drafts  being  made  upon  it,  by  an  agreement  of  the  controller  of  the 
currency  in  China  to  honor  silver  drafts  drawn  against  the  Chinese 
Govermnent  by  its  agents  abroad  in  exchange  for  gold  deposited  in 
the  fund.  The  rates  should,  of  course,  be  fixed  by  the  conditions  at 
the  time,  and  to  the  controller  should  be  given  discretion,  within 
certain  limits,  at  least,  in  fixing  the  rate.  In  this  way  a  crisis  of  even 
a  considerable  length  could  beyond  doubt  be  safely  tided  over,  pro- 
vided the  system  itself  in  China  were  managed  intelligently  and 
firmly. 

The  Government  might  also,  following  the  example  of  Japan,  buy 
in  China  gold  bills  of  exchange  on  Europe  and  later  collect  the  gold 
there  for  its  reserve. 


102       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

5.  If  the  Chinese  Government  conhl  open  and  Avork  some  of  the 
gold  mines  which  the  conntry  is  said  to  contain,  it  is  (juite  possibh' 
that  within  a  few  years  a  good  suj^ply  conkl  be  secured  from  this 
source. 

8.  BANK  NOTES. 

As  soon  as  practicable,  if  not  even  from  the  very  beginning,  some 
provision  should  be  made  for  the  issue  of  bank-notes  payable  in  the 
new  currency,  to  be  issued  and  managed  in  accordance  with  conserva- 
tive banking  principles.  A  proper  bank-note  system,  whether  issued 
by  a  single  bank  or  a  system  of  banks,  luider  proper  organization  and 
control,  Avould  give  the  needed  elasticity  to  the  system,  by  which  the 
amount  of  currency  would  practically  automatically  increase  and 
decrease  in  accordance  wath  the  needs  of  business. 

Such  a  system  would  do  very  much  to  protect  the  gold  reserve.  At 
a  time  of  an  increase  in  the  demand  for  money,  either  for  moving  the 
crops  or  other  temporary  purposes,  unless  there  were  some  bank-note 
system  established  there  would  be  naturally  a  large  issue  of  the  new 
silver  coins.  When  this  extraordinary  demand  fell  otf  the  silver 
coins  might  easily  be  to  a  considerable  extent  excessive,  and  thus  the 
rate  of  exchange  would  naturally  rise  and  the  coins  would  be  paid  in 
for  bills  of  exchange  drawn  against  the  gold  reserve.  If,  on  the  other 
hand,  a  ])roper  bank-note  system  were  established,  the  increased 
demands  for  money  would  be  met  by  the  increased  issue  of  notes,  and 
a  shrinkage  in  the  demand  would  result  in  the  paying  in  of  these 
notes,  and  in  the  consequent  reduction  of  the  monetary  circulation 
without  danger  of  a  corresponding  demand  upon  the  gold  reserve. 

In  the  next  place  the  bank-note  system  would  take  its  part  in  the 
supply  of  the  monetary  needs  of  the  country  at  a  less  cost  than  would 
the  otherwise  larger  coinage  of  silver;  always  provided,  of  course, 
that  the  bank-note  system  is  established  on  sound  principles. 

Of  a  nature  somewhat  diiferent  is  another  advantage  which,  never- 
theless, ought  not  to  be  overlooked — that  is,  the  advantage  which 
would  come  from  interesting  lianlvcrs  in  the  monetary  system  of  the 
Government,  and  getting  their  counsel  and  support  in  the  proper 
management  of  the  system. 

It  is  the  opinion  of  many  of  the  best  authorities  that  a  proper  bank- 
note system  could  be  best  secur-ed  through  the  establishment  of  one 
im])erial  ])ank,  which  should  have  the  monopoly  of  bank-note  issue, 
as  is  tlie  case  in  Japan,  France,  and  elsewhere.  Such  a  bank,  if  estab- 
lished, would  naturally  becouK^  the  chief  fiscal  agent  of  the  (Tovern- 
ment  in  connection  with  its  loans  and  its  general  financial  administra- 
tion. 

Of  course  the  minor  points  in  the  (establishment  of  a  monetary  sys- 
teui  for  any  country,  such  as  the  amount  of  coin  that  is  to  be  issued 
before  tlu'  system  is  put  into  effect,  the  exact  time  for  th(^  introduc- 
tion of  the  system,  the  rapidity  of  its  extension,  the  jilaces  in  Avhich 
th<^  gold  reserve  or  gold  credit  shall  be  kept,  the  size  of  tlie  loan  neces- 
sary, etc.,  nnist  be  settled  on  the  spot  l)y  persons  who  are  intrusted 
willi  (li(^  onerous  duties  of  j:)utting  the  system  into  effect  and  of  its 
administration.    It  is  possible   and  proper  in  this  place  only  to  indi- 


GOLD    R  \.NDARD    TTST    INTERNATIONAL    TRADE.  103 

ciitc  ill  ii  I'c'w  lines  (ho  iialinv  of  the  system  and  the  general  principles 
on  which  it  can  be  and  ()ii<iht  to  be  established. 

9.  WORK  ALREADY  DONE. 

It  was  felt  by  the  Commission  on  International  Exchange  that  the 
first  essential  stei)  in  giving  to  the  Chinese  Empire  a  sonnd  currency 
was  to  present  the  subject  to  the  leading  powers  having  (commercial 
and  financial  interests  in  the  Orient,  with  the  object  of  bringing  into 
a  clear  light  the  advantages  of  the  proposed  measure,  demonstrating 
to  those  jiowers  the  impartial  motives  of  the  United  States,  and 
securing  their  approval  of  the  general  project  and  of  the  initiative 
of  the  American  (lovernment. 

AVhile  many  other  steps  will  be  required  before  the  gold  standard 
can  be  in  actual  operation  throughout  the  length  and  breadth  of  the 
Chinese  Empire,  it  was  felt  that  the  one  step  absolutely  vital  to  the 
inauguration  of  the  system  was  that  approval  of  the  principle  should 
be  first  secured.  In  this  fundamental  matter  the  American  Commis- 
sion has  been  completely  successful.  Approval  of  the  principle  of  a 
national  gold-currency  system  for  China  has  been  given  by  Great 
Britain,  France,  the  Netherlands,  Germany,  Japan,  and  Russia,  with 
a  completeness  which  has  removed  the  first  great  obstacle  to  bringing 
the  monetary  system  of  the  Chinese  Empire  into  harmony  with  that 
of  other  commercial  States. 

The  representatives  of  all  of  the  j^owers  consulted,  as  has  already 
been  stated,  accepted  in  a  general  way  as  desirable  and  practicable  the 
suggestions  made  by  the  Commission  of  the  United  States.  The  char- 
acter of  these  approvals  warrants  the  statement  that  the  work  of  the 
Commission  up  to  this  time  has  been  entirely  successful.  Differences 
of  opinion  in  regard  to  details  were  naturally  encountered  at  different 
capitals,  but  they  were  overcome  in  many  cases  by  mutual  discussion 
and  comparison  of  views.  The  form  in  which  the  ultimate  opinions 
of  the  commissions  were  expressed  also  differed.  In  Great  I3ritain 
and  Germany  there  was  an  agreement  upon  certain  principles,  which 
was  signed  mutually  by  the  representatives  of  the  countries  engaged 
in  the  conference.  The  views  of  the  delegates  of  the  Netherlands  and 
of  France  were  expressed  in  reports  discussing  at  considerable  length 
the  points  submitted  by  the  American  and  Mexican  commissions  and 
expressing  judgment  upon  them.  In  Russia  a  formal  statement  of 
views  was  prepared  by  the  Russian  commissioners,  which  Avas  not 
mutually  signed,  but  was  transmitted  by  the  Russian  commission  to  the 
Mexican  and  American  (commissions  as  a  formal  expression  of  the 
views  of  the  Russian  Government.  In  Japan  likewise  the  represent- 
atives of  Japan  expressed  their  unanimous  conclusions  in  a  series  of 
sta'tements  which  were  in  practical  accord  with  the  American  position. 

Upon  the  soundness  of  the  general  ])roposition  laid  down  by  the 
Mexican  and  American  commissions,  that  the  adoption  of  a  gold- 
exchange  standard  in  the  present  silver-using  countries  would  greatly 
contril)ute  to  their  economic  progress,  there  was  universal  agreement 
at  every  Euro})ean  capital  where  the  subject  was  presented.  There 
was  agreement  upon  the  princij^le  that  such  a  system  must  involve  the 
continued  large  ub'b  of  silver  coins,  in  order  to  conform  to  long-estab- 


104  GOLD    STANDARD    IN   INTERNATIONAL    TRADE. 

lished  customs  and  existing  scales  of  value,  but  that  free  coinage  of 
silver  should  be  suspended  and  the  determination  of  the  quantity  of 
the  coins  taken  under  the  control  of  the  State,  in  order  that  measures 
might  be  promptly  taken  to  give  them  a  fixed  relation  with  gold. 

Upon  the  subject  of  the  introduction  of  a  uniform  gold-standard 
system  into  China  there  was  unanimous  agreement  that  such  a  system 
would  be  desirable  and  adA^antageous,  both  to  China  and  to  the  gold- 
standard  countries  which  have  large  commercial  dealings  with  her. 
Upon  the  question,  however,  whether  the  gold  standard  should  be 
established  at  the  beginning  or  should  come  after  the  introduction 
of  a  uniform  national  currency  upon  the  silver  basis,  there  was  some 
difference  of  opinion.  The  British  resolutions  declared  tliat  the 
national  currency  of  China  should  consist  of  silver  coins  made  full 
legal  tender  throughout  the  Empire  and  that  "  as  soon  as  practica- 
ble steps  should  be  taken  for  the  establishment  in  China  of  a  fixed 
relation  between  the  silver  unit  and  gold."  It  was  explained  that  if 
it  were  possible  as  a  practicable  matter  to  start  with  the  silver  coins 
on  a  gold  basis  that  plan  would  be  best.  It  was,  however,  not  thought 
practicable.  The  Russian  resolutions  recited  some  of  the  difficulties 
of  beginning  upon  a  gold  basis  and  declared  that  the  American  plan 
"  would  have  our  approval  if  it  were  so  amended  as  to  mean  a  national 
silver  currency  issued  on  Government  account,  which  should  be  given 
as  soon  as  practicable  a  fixed  parity  with  gold."  This  is  practically 
the  same  as  the  English  expression,  except  that  it  favors  coinage 
only  on  Government  account.  The  report  of  the  Netherlands  Com- 
mission strongly  favored  a  gold  parity  from  the  beginning  and 
declared  this  to  be  the  only  practicable  method  of  obtaining  the  bene- 
fits of  a  fixed  exchange;  but  it  was  pointed  out  that  care  and  intel- 
ligence woidcl  be  required  in  the  administration  of  such  a  system. 
The  German  resolutions  declared  against  free  coinage  of  the  silver 
coins  and  asserted  that  the  Chinese  Government  should  "  take  at  the 
beginning  of  the  reform  all  those  steps  which  would  allow  her  an 
influence  on  the  rate  of  foreign  exchange."  The  French  report  also 
favored  the  system  suggested  by  the  commissions  of  Mexico  and  the 
United  States.  The  Japanese  report  looks  forward  to  a  gold  sys- 
tem in  the  future,  after  the  model  of  that  of  Japan,  but  declares 
that  *'•  in  view  of  the  present  condition  of  China,  it  is  too  much  to 
expect  that  the  currency  reform  can  be  started  at  once  on  a  perfect 
system ;  and  as  it  is  considered  highly  disadvantageous  to  delay  the 
said  reform  on  that  account,  it  is  advisable  to  adopt  the  suggestions 
of  tlie  American  Commission  as  a  matter  of  expediency."  They  add 
that  "  the  utmost  skill  and  care  are  needed  to  overcome  the  great  diffi- 
(•ulties  which  necessarily  accompany  the  operation  of  the  system." 

Tims,  up(m  the  part  of  six  ])owers — Germany,  France,  the  Nethg'r- 
lands,  Mexico,  Ja])an,  and  the  United  States — there  was  agreement 
that  the  best  method  was  to  l)egin  the  issue  of  the  new  currency  at  a 
fixed  parity  with  gold,  while  upon  the  part  of  Great  Britain  and 
Russia  there  was  a  disposition  to  favor  l)eginning  on  a  silver  basis, 
with  the  view  of  first  supplying  the  country  with  a  uniform  currenc}' 
and  then  giving  it  witliin  a  short  interval  a  fixed  gold  value. 

Upon  the  sui)ject  of  adopting  tlie  rehitively  uuiform  rntio  of  al)out 
32  to  1  in  the  currency  systems  to  be  estabished  in  the  Orient  by  those 


GOLD    STANDARD    IN    TNTP^RNATTONAL    TRADE.  105 

countries  aiul  (IcixMidcucics  wliicli  are  eoiisideriiii;  a  change  in  their 
existing  systems,  there  was  agreement  in  all  countries  except  Russia. 
In  Russia  the  wisdom  of  a  ratio  which  would  prev^ent  the  exportation 
of  the  coins  by  the  rise  in  the  price  of  silver  was  admitted,  but  it  was 
deemed  best  to  make  the  reservation  that  each  coimtry  should  deter- 
mine its  own  ratio  according  to  its  monetary  needs  and  economic  con- 
ditions. Even  in  Russia,  however,  indorsement  w^as  given  to  the 
ratio  of  32  to  1  for  China  as  corresponding  to  actual  economic 
conditions. 

Upon  the  proposal  that  there  would  be  advantages  in  making  the 
purchases  of  silver  actually  required  by  each  government  for  its  coin- 
age purposes  with  as  nuich  regularity  as  possible,  there  was  agree- 
ment at  each  capital  Avhere  the  subject  was  considered,  except  in 
France,  where  objection  was  made  to  the  adoption  of  any  definite 
official  policy  on  the  sul)ject.  Doubt  was  expressed  in  some  cases  as 
to  whether  actual  reciuirements  could  always  be  determined  with 
regularity,  but  the  princii)le  was  declared  to  be  sound,  that  regularity 
of  purchases  would  be  beneficial  alike  to  the  silver  market  and  the 
stability  of  international  exchange. 

Still  another  subject  was  dealt  w4th  by  the  French  and  German 
commissions  without  solicitation  by  the  Commission  of  the  United 
States.  This  was  the  internal  tax  levied  upon  manufactured  articles 
of  silver.  The  French  tax  upon  such  articles  is  high,  amounting  to 
about  30  per  cent  of  the  value  of  the  silver  at  its  present  price,  and 
imi^oses  serious  restrictions  upon  the  use  of  such  articles  in  France. 
It  was  suggested  by  the  Fi-encli  delegates  themselves,  therefore,  that 
the  abolition  or  reduction  of  this  tax  would  be  advantageous  and  that 
they  would  recommend  it  to  their  Government.  A  similar  declara- 
tion was  made  b}^  the  German  commission.  The  text  of  the  resolu- 
tions and  reports  adopted  in  each  country  will  be  found  in  an  appen- 
dix to  the  complete  report  of  the  Commission. 

The  German  resolutions  recited  the  fundamental  principle,  embod- 
ied in  the  original  notes  of  China  and  Mexico  addressed  to  the  United 
States,  that  it  was  not  sought  to  affect  a  change  in  the  monetary  sys- 
tem of  the  gold-standard  countries,  and  that  the  establishment  of 
international  bimetallism  was  "  neither  intended  nor  considered  prac- 
ticable." This  declaration,  it  is  needless  to  say,  had  the  cordial 
approval  of  the  Mexican  and  American  commissions. 

10.  THE  CONTINUANCE  OF  THE   WORK. 

The  securing  of  the  formal  apj^roval  of  the  representatives  of  the 
leading  European  powers  and  of  Japan  to  the  principle  of  the  prompt 
establishment  of  a  imiform  monetary  system  for  China,  placed  on  a 
gold  basis,  either  at  once  or  at  the  earliest  practicable  moment, 
marks  the  first  necessary  step,  though  only  one  step,  toward  the 
accomplishment  of  the  work  of  the  Commission,  as  indicated  in  the 
notes  of  Mexico  and  China  in  presenting  the  subject  to  the  Govern- 
ment of  the  Ignited  States. 

A  project  of  law  is  already  in  course  of  preparation  in  Mexico 
which  contemplates  the  ado])tion  of  the  gold-exchange  standard,  and 
which  will  probably  be  enacted  at  the  present  session  of  the  Mexican 
Ccngross. 


106       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

Owing-  to  the  conditions  in  China,  which  have  already  been  dis- 
cussed, the  adoption  of  a  sound  monetary  system  in  that  country  is  a 
much  more  difficult  matter.  At  the  suggestion  of  representatives  of 
the  Chinese  Government  one  member  of  the  American  Commission  is 
in  China  to  present  formally  to  the  Imperial  GoA^ernment  the  results 
of  the  work  accomplished  in  Europe  hy  the  Mexican  and  American 
commissions.  The  United  States  is  already  in  a  position  to  state  that 
no  obstacle  will  be  placed  in  China's  way  by  any  of  the  European 
powers,  or  by  Japan,  and  that  in  many  ways  she  may  count  on  their 
hearty  cooi^eration. 

The  commissioner  Avill  be  glad  to  cooperate  with  the  Chinese  Gov- 
^ernment  in  formulating  the  details  of  a  suitable  gold-exchange  sys- 
tem and  in  presenting  the  matter  to  native  and  foreign  business  men 
and  officials  and  in  urging  it  wherever  such  work  can  be  of  assistance. 

The  notes  of  the  governments  of  Mexico  and  China  contemplated 
also  the  extension  of  the  fixed  exchange  system  in  some  practicable 
form  to  the  other  silver-using  countries  of  the  world.  Peru  has 
already  taken  action  of  her  own  volition,  and  the  Straits  Settlements 
with  the  Federated  Malay  States  and  French  Indo-China  have  taken 
first  steps  toward  securing  this  fixed  parity  of  exchange.  AA^ien  China 
succeeds  in  carrying  out  her  plans  the  English  colony  of  Hongkong 
and  the  German  colony  of  Kiao  Chau  Avill  doubtless  employ  either 
the  system  adopted  by  China  or  one  closely  related  to  it.  With  the 
new  system  successfully  inaugurated  in  the  near  future  in  Mexico 
and  in  preparation  by  China,  the  path  will  be  opened  for  the  presen- 
tation of  the  project  by  the  American  Commission  to  the  friendly 
republics  of  Latin  America,  and  for  widening  the  opportunities  there 
for  the  extension  of  American  trade. 

The  work  has  been  begun  successfully,  even  beyond  the  anticipa- 
tions formed  by  the  Commission  at  the  outset.  The  study  of  the  sub- 
ject has  brought  into  clear  light  the  great  difficulties  of  the  task,  but 
it  has  made  still  more  evident  the  great  benefits  that  are  to  come,  both 
to  the  silver  countries  and  to  Europe  and  the  United  States,  from  the 
success  of  the  movement  when  it  is  finally  assured. 

The  friendly  petition  of  China  to  the  United  States  has  been  a 
natural  result  of  the  cordial  relations  between  the  two  powers  growing 
out  of  the  enlightened  attitude  of  our  Government,  and  has  afforded 
the  means  of  demonstrating  anew  the  desire  of  the  United  States  to 
l)romote  the  true  economic  interests  of  China,  in  the  belief  that  those 
interests  are  identical  with  those  of  America  and  of  all  other  powers 
seeking  legitimate  commercial  opportunities  in  the  Orient. 

V.  THE    BALANCE  OF  TRADE  AS  A  FACTOR    IN    THE    ESTABLISH- 
MENT OF  A  GOLD   EXCHANGE  STANDARD. 

1.  In  their  discussions  on  the  establishment  of  a  gold-exchange 
standard  in  the  Straits  Settlements,  China,  Siam,  and  elsewhere,  a 
number  of  bankers  and  other  business  men  have  expressed  the  opinion 
liiat  the  balance  of  trade  of  those  colonies  is  a  most  important  factor 
in  the  question.  It  has  even  been  stated  that  it  would  probably  b(^ 
im])ossible  foi-  ('hina  to  establish  such  a  monetary  system  on  account 
of  the  asserted — not  f  ullv  (istablished — fact  that  the  balance  of  trade  is 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       107 

heavil}'  !ig"nins(  her.  Tt  soonis,  tlioroforo,  of  conftoqiionco  iluil  this 
qiiesiioii  he  exaniiiUHl  wilh  some  caie  before  active  ste])s  are  taken  for 
the  establishment  of  a  new  s^'stem  in  any  silver-standard  country. 

2.  From  the  days  when  the  mercantilist  doctrine  in  political 
economy  was  dominant,  business  men  have  spoken  of  a  favorable  and 
of  an  unfavorable  balance  of  trade.  The  balance  is  considered  fav- 
orable when  the  exports *of  commodities  for  a  time  apparently  exceed 
in  value  the  imports  of  commodities,  and  the  balance  of  trade  is  con- 
sidered unfavorable  when  the  conditions  are  the  opposite.  The  rea- 
son for  these  expressions  primarily  was  the  fact  that  silver  and  gold 
were  considered  commodities  of  peculiar  importance  to  the  prosperity 
of  a  country.  The  importation  of  the  precious  metals  was  looked 
upon  under  all  circumstances  as  a  decided  benefit  and  their  export 
as  a  more  or  less  severe  misfortune.  Of  course,  the  truth  of  the 
matter  is  that  in  some  way  in  the  long  run  the  value  of  the  exports  all 
told  of  a  country  must  balance  the  imports;  or,  at  least,  generally 
speaking,  they  must  pay  interest  on  foreign  cai:>ital  invested  in  the 
f()rm  of  imports;  otherwise,  people  would  be  either  importing  goods 
for  which  they  were  not  compelled  to  pay,  or  they  w^ould  be  exjjorting 
goods  for  which  they  w^ere  to  receive  no  pay.  This  state  of  a  flairs,  it 
is  needless  to  say,  does  not  exist.  It  may  be  that  some  of  the  exports 
or  of  the  imports  will  be  either  gold  or  silver,  or  for  a  time  credit  may 
take  the  place  of  goods;  but  in  international  trade  gold  or  silver  bars 
are  ordinarily  used ;  or,  if  coins  are  used,  they  too  are  employed  simply 
as  conmiodities.  \\liether  gold  or  silver  shall  be  exported  depends  in 
fact  ultimately  upon  the  question  wdiether  it  is  cheaper  for  the  country 
concerned  to  sell  silver  or  gold  rather  than  to  sell  commodities  of 
some  other  class.  No  one,  of  course,  would  deny  the  fact  that,  under 
certain  conditions  of  trade,  gold  and  silver  as  the  commodities  on 
which  our  monetary  and  banking  systems  are  based  are  commodities 
of  very  exceptional  importance  in  the  business  of  a  country,  as  pow^- 
der  and  lead  or  possibly  horses  are  in  time  of  w-ar;  and  under  special 
circumstances  a  country  frequently  does  pay  unusual  rates  for  the  sake 
of  securing  these  commodities  at  those  times.  These  extraordinary 
demands  for  money  are  usuall}^  due  either  to  conditions  which  dimin- 
ish credit,  or  to  special  need  of  cash  for  special  purposes.  The  last 
need  is  ordinarily  easily  met  by  a  good  banking  system;  the  first  often 
in  part  by  a  sound  money  system  in  which  people  have  confidence. 

3.  The  statistics  of  exports  and  imjjorts  of  commodities  are  ordi- 
narily used  in  discussions  as  an  indication  of  the  real  balance  of  trade. 
This  will,  of  course,  give  an  apparent  balance,  though  often  not  the 
real  (me.  For  many  3^ears,  for  examjile,  P^ngland's  imports  of  com- 
modities have  been  far  greater  than  her  exports,  so  that  apparently 
the  balance  of  trade  has  been  decidedly  against  her.  One  reason  for 
this  apparent  discrepancy  has  been  that  England,  as  a  creditor  coun- 
try, with  money  invested  in  enormous  sums  abroad,  has  had  due  to  her 
people  the  interest  or  profit  on  these  investments,  so  that  this  interest 
has  been  used  abroad  to  pay  for  many  of  the  goods  imported.  Like- 
wise English  ships  ha\e  been  to  a  great  extent  the  freight  carriers  of 
the  world,  and  the  freights  paid  by  foreigners  to  shipowners  have 
been  used  to  ])ay  for  the  goods  imported.  These  two  prominent 
factors  have,  of  course,  been  supi)leniented  by  some  others,  so  that  a 
condition  whicli  has  been  spoken  of  as  an  unfavorable  balance  of  trade 


108       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

has,  in  itself,  inidor  ordinary  circumstances,  made  no  extraordinary 
demand  f<jr  exj^ort  of  gold  from  England. 

In  i^ractically  every  new  country  in  process  of  development  invest- 
ments are  made  by  citizens  of  the  wealthier  countries.  During  the 
period  of  this  investment,  machinery,  equipments  for  railroads,  build- 
ing materials,  and  supplies  of  various  kinds  are  sent  into  the  new 
country  to  be  used  in  production  there.  The  foreigners  who  thus 
place  this  capital  in  the  new  country  do  not  expect  that  capital  to  be 
returned,  at  any  rate  for  a  long  period  of  years.  In  many  countries 
such  investments  become  permanent.  The  onl}^  return  that  is  then 
demanded  is  the  interest  or  the  profits  on  these  investments,  and  even 
they  in  many  cases  are  re-invested,  so  that  there  is  no  demand  for 
exports  to  offset  the  imports  thus  made. 

Here,  again,  an  apparent  balance  of  trade  against  the  country  ma}'^ 
mean  simply  that  capital  is  being  invested  in  that  country,  and  that 
the  investments  ai-e  making  little,  if  any,  demand  for  the  export  of 
gold  or  silver,  or  even  for  the  export  of  other  commodities.  It  should 
then  be  kept  in  mind  that  the  ordinary  statistics  regarding  exports 
and  imports  may  be  very  deceptive,  and  that,  at  any  rate  in  the  long 
run,  a  country  can  not  continue  buying  goods  unless  she  is  in  some 
way  or  other  making  provision  for  payment  for  those  goods  or  for  the 
use  of  the  capital  wdiich  they  represent.  These  payments  may  at 
times  be  made  in  gold  or  silver;  but  the  precious  metals,  and  especi- 
ally coined  moneys,  will  not  be  so  used  unless  under  all  the  circum- 
stances of  the  case  it  is  cheaper  to  send  them  than  to  send  other  com- 
modities. Should  money  become  scarce  in  the  country,  the  result,  of 
course,  is  that  it  becomes  dear,  or  to  express  the  same  thing  differently, 
that  the  rates  of  interest  or  discount  rise.  This  tends,  if  other  things 
remain  equal,  to  diminish  the  value  of  commodities  in  relation  to 
money;  prices  of  connnodities  fall,  and  thus  it  pays  better  to  export 
other  commodities,  and  if  the  process  continues,  to  import  gold. 

Of  course  the  fact  is  recognized  that  the  demand  for  gold  may  for 
a  time  be  very  strong  and  the  rates  high.  In  consequence,  if  a  govern- 
ment attempts  to  supply  gold  or  gold  exchange,  it  must  be  prepared 
to  supply  large  sums  on  short  notice;  but  such  demand  can  not  last 
long  with  high  rates  and  a  contracting  currency.  (See  also  pp.  35 
et  seq.  for  means  of  securing  gold.) 

4.  These  general  principles  may  now  be  briefly  applied  to  the  ques- 
tion of  the  establishment  of  a  gold-exchange  standard.  If  silver  coins 
in  a  country  are  to  be  raised  above  the  value  of  the  bullion  contained 
in  them,  in  order  that  they  ma}^  pass  at  par  with  gold,  in  some  way 
they  must  be  made  equally  available  with  gold  so  far  as  their  service- 
ableness  for  doing  the  money  work  of  the  coinitry  under  consideration 
is  concerned.  There  are  various  ways  in  Avliich  these  silver  coins  may 
be  given  a  value  above  that  of  the  bullion  contained  in  them: 

(a)  There  is  a  certain  amount  of  money  work  to  be  done  in  a  coun- 
try. If,  by  limitation  of  (coinage,  the  coins  are  kept  relatively  scarce 
as  (compared  Avith  the  Avork  to  be  done,  they  Avill  acquire  the  added 
value  that  is  ordinarily  given  to  any  connnodity  Avhen  the  demand  for 
it  is  gn^at  and  the  su})ply  relatiA^ely  limited. 

(/j)  The  (Jrovermneiit  under  consideration  may  also  agree  to  receive 
these  silvei"  coins  in  p:iyment  of  obligations  due  to  the  Government  at 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       109 

the  same  rate  at  Avliich  it  will  receive  gold  coins  Avhicli  legally  repre- 
sent the  same  value,  thus  creating  a  strong  and  constant  demand. 

(c)  The  silver  coins  may  likewise  be  made  legal  tender  for  private 
debts,  which  will  tend  to  increase  the  demand  for  them. 

Neither  of  the  above  methods  would  be  affected  bj'^  the  balance  of 
trade.     They  do  not  call  for  gold. 

{d)  The  Government  may  agree  under  certain  circumstances  to 
redeem  the  silver  coins  with  gold.  This  redemption  may  be  carried 
out  in  various  ways.  Gold  coins  might  be  given  directly  for  silver 
coins  on  demand  either  at  par  or  at  a  certain  fixed  charge.  In  this 
case  the  Government  might  need  to  keep  gold,  and  a  temporaiy 
adverse  balance  of  trade  Avould  cause  high  rates  to  be  paid  for  gold  if 
it  were  needed.  A  government  can,  of  course,  arrange  to  buy  gold,  if 
necessary,  as  Japan  and  Russia  in  fact  did  in  many  cases  when  they 
were  establishing  their  new  systems.  But  in  such  a  country  as  China, 
for  example,  where  silver  is  the  current  coin,  gold  would  be  demanded 
in  actual  life  for  only  two  purposes:  First,  for  use  in  the  arts.  In  that 
case  gold  might  be  bought  by  the  goldsmiths  as  bullion  wherever  they 
wished,  and  tlieA^^  should  pay  for  it  accordingly.  There  is  no  reason 
why  the  Government  should  attempt  to  supply  coins  or  bullion  for 
any  such  purpose.  Second,  those  pei'sons  who  have  debts  payable  in 
gold  standard  countries  might  wish  to  buy  foreign  bills  of  exchange 
in  order  to  pi\\  those  debts. 

The  Government  might  then,  for  all  purposes  of  business,  keep  a 
gold  reserve  in  Europe  and  America  against  which  it  could  sell  l^ills 
of  exchange  in  return  for  the  new  silver  coins  paid  into  the  treasury. 
It  has  long  been  the  custom  of  Holland,  through  its  national  bank, 
in  this  way  to  protect  the  parity  of  its  silver  coins  while  still  main- 
taining its  gold  reserve.  Ever  since  the  establishment  of  its  present 
system  Holland  has  consistentl}^  refused  to  pay  out  gold  on  demand 
in  exchange  for  its  silver  coins.  Whenever  gold  is  demanded  the 
inquiry  is  specifically  made  and  examined,  whether  the  gold  is  needed 
for  export.  If  so,  it  is  regularly  granted;  if  not,  it  is  regularly 
refused.  Of  course  the  Baidv  of  Holland  has  it  in  its  power  to  con- 
trol to  a  considerable  extent  the  rate  which  will  be  charged  for 
exchange  on  foreign  countries,  although  in  the  main,  naturally,  that 
is  controlled  by  the  commercial  situation;  and  the  Bank  of  Holland, 
it  is  understood,  will  give  gold  in  exchange  for  silver  for  export 
purposes  Avithout  itself  demanding  the  right  of  selling  a  foreign  bill. 

The  Chinese  Government,  if  it  wished  to  enter  into  the  banking 
business,  either  through  a  national  bank  or  directl3%  might  in  this 
way  enter  into  competition  with  the  l^anks  in  China  by  selling  bills 
of  exchange  against  a  gold  reserve  in  Europe  and  America  at  the  cur- 
rent rates  of  exchange  of  the  day.  It  is  not,  however,  necessary,  in 
order  to  protect  the  parity  of  its  silver  coins,  that  the  Chinese  Govern- 
ment should  directly  enter  the  banking  business,  and  it  probably 
would  not  be  wise  for  it  to  do  so.  On  all  ordinary  occasions  it  might 
be  well  to  permit  this  business  to  be  done  by  the  banks  already  estab- 
lished. If,  however,  for  any  reason  there  came  a  tendency  toward 
the  depreciation  of  the  silver  coins,  so  that  the  exchange  rates  became 
abnormally  unfavorable,  the  Government  might  then  sell  in  large 
sums  to  either  the  banks  or  to  orivate  individuals  bills  of  exchange 


110       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

against  its  foreign  gold  reserve.  It  will  be  seen  that  if  it  adopts  this 
policy,  the  silver  coins  would  be  paid  in  only  when  there  was  a 
tendency  for  them  to  depreciate,  either  because  they  had  become 
redundant  through  an  overissue  or  through  a  decided  slackening  of 
the  demands  for  local  business.  Such  coins  would  regularly  be  worth 
much  more  in  their  own  country  than  in  any  other  country  and  they 
would  never  be  shipped  out.  If,  as  soon  as  thej^  were  paid  in  for 
bills  of  exchange,  they  were  locked  up  in  the  treasury,  the  scarcity 
thus  caused  would  comparatively  soon  make  them  more  valuable  for 
the  local  trade  than  for  the  purchase  of  bills  of  exchange,  and  then 
demands  on  the  foreign  gold  reserve  would  cease.  The  balance 
abroad  would  be  met  by  the  shipping  of  other  less-needed  commodi- 
ties and  the  currency  would  be  protected.  An  adverse  balance  of 
trade,  it  is  thus  seen,  would  not  affect  the  monetary  system  in  the  long 
run  so  long  as  its  coins  were  not  over-issued  or  did  not  for  some  reason 
, become  redundant,  and  would  then  alfect  it  only  so  long  as  the  surplus 
was  being  automatically  retired. 

5.  According  to  the  best  available  statistics  the  following  appears 
regarding  China's  balance  of  trade: 


GOLD   STANDARD    IN    INTERNATIONAL   TRADE. 


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112  C4ULD    STANDARD    IN    INTERNATIONAL    TRADE. 

Speaking  generally,  for  the  past  decade  or  more  there  has  been  a 
considerable  exportation  of  gold  from  China,  since  gold  has  not  been 
needed  in  the  country',  the  monetary  demands  being  snpplied  entirely 
by  silver  and  copper.  Silver,  on  the  other  hand,  as  the  money  metal 
in  steady  demand  with  no  snfficient  production,  has  usually  been  im- 
l^orted.  But  the  figures  given  show  a  steady,  and  on  the  whole  a 
steadily  increasing,  excess  of  aggregate  imports,  including  gold  and 
silver.  This  must,  of  course,  have  been  covered  in  some  way.  Possi- 
bly there  have  been  exports  of  considerable  moment  overland,  so  that 
they  have  not  been  noted  in  the  customs.  Probably  large  investments 
have  been  made  of  foreign  capital  for  Avhich  no  exports  in  return  have 
been  demanded.  In  fact,  for  several  years  the  imports  of  machinery, 
manufactures  of  iron,  etc.,  which  are  probably  largely  of  this  nature, 
amount  to  some  five  or  six  million  taels  annually.  The  years  1900- 
1901  show  how  exceptional  conditions  make  themselves  at  once  felt, 
but  nowhere  is  there  anything  to  show  that  an}^  principles  different 
from  those  indicated  have  been  at  work. 

To  sum  the  matter  up : 

6.  If  a  silver-standard  country,  China,  for  example,  should  estab- 
lish a  silver  currency  which  it  attempts  to  maintain  at  a  parity  with 
gold,  giving  to  its  coins  a  value  above  their  bullion  rate,  it  is  not 
probable  that  there  would  be  any  serious  difficulty  in  maintaining 
that  parity  in  the  long  I'un,  on  account  of  exchange  conditions.  In 
China  there  is  at  the  present  time  a  large  amount  of  silver  in  various 
forms  which,  even  in  China  itself,  passes  substantially  as  bullion. 
Should  this  prove  to  be  a  cheap  commodity  to  send  abroad,  there 
would  surely  be  no  objection.  If  a  new  system  were  established,  with 
silver  coins  above  their  bullion  value,  and  there  should  be  a  very  large 
coinage,  so  that  there  was  a  tendency  for  the  silver  coins  to  fall  below 
the  gold  parity,  the  standard  rates  would  at  once  rise  in  terms  of  the 
local  currency;  i.  e.,  one  would  be  compelled  to  pay  more  of  the  Chi- 
nese currency  for  a  pound  sterling  than  before.  Those  people  who 
had  gold  debts  to  pay  abroad  would  find  that  they  must  pay  higher 
rates  in  these  silver  coins,  because  they  had  really  become  cheaper 
than  their  nominal  value.  If  the  Government  would  sell  gold 
exchange  to  meet  all  demands  at  some  fixed  rate  more  unfavorable 
than  the  usual  banking  rate,  it  would  receive  these  coins  when  that 
point  was  reached  and  sell  the  exchange,  and  the  bank  rate  could,  in 
consequence,  not  rise  above  the  governmental  rate.  For  example, 
if  the  usual  banking  rate  in  the  new  coins  Avere  about  one  standard 
coin  for  ti  shillings,  and  if  the  Government  agreed  to  sell  exchange 
on  London  to  any  auKjunt  whenever  the  i-ate  reached  1.02  for  2  shil- 
lings, exchange  could  never  rise  above  that  i)oint.  If,  as  they  were 
paid  in,  the  coins  were  retained  in  the  vaults  by  the  Government  or 
by  banks  acting  as  agents  for  the  Government,  and  Avere  not  reissued, 
a  relative  scarcity  of  them  would  soon  be  created,  so  that  they  would 
return  to  their  k'gal  gold  value,  and  then  this  special  demand  on  the 
gold  reser\e  wt)ul(l  at  once  cease.  There  would,  under  circumstances 
of  this  kind,  be  no  danger  of  their  going  out  of  the  country  to  so 
great  an  extent  as  seriously  to  hamper  business.  In  fact,  as  China 
would  be  (he  ouly  country  in  which  they  would  l)e  worth  more  than 
their  bullion  value,  they  would  not  be  exported  at  all,  unless  they  fell 
to  their  bullion  value. 


GOLD    STANDAKL)    IN    INTKRNATTONAL    TRADE.  113 

It  is  not  oxpecloil,  of  coui-sc,  that  thoro  would  be  retained  in  China 
for  business  ])urposes  any  g'old  worth  consideration.  The  banks 
would  under  oi-dinary  circumstances  find  themselves  al^le  to  meet 
demands  for  <2,<)ld  exchan<>;e  at  ordinary  business  rates,  the  same  as  is 
done  at  the  present  time.  If,  for  any  reason,  there  came  an  undue 
pressure  so  that  their  rates  became  very  unfav()ral)le,  the  Goverinnent 
nii^ht  then  properly,  in  orchn-  to  prevent  any  depreciation  of  its 
standard,  itself  oU'er  to  sell  "old  exchange  at  rates  considered  worse 
than  those  ordinarily  charged  by  the  banks.  This  would  under  all 
circumstances  prevent  any  depreciation  below  such  charge.  For  this 
])uri)ose  the  Government  would  of  necessity  keep  a  gold  credit 
abroad.  Inasnuich,  however,  as  gold  deposited  in  Europe  or  America 
would  draw  interest,  or  a  gold  credit  which  was  not  likely  to  be  drawn 
upon  could  be  obtained  at  a  very  low  rate,  the  expense  need  not  be 
great;  and,  inasmuch  as  the  gold  reserve'  would  thus  be  called  upon 
only  under  extraordinary  circumstances,  the  country  on  its  gold- 
exchange  system  would  find  its  business  handled  in  substantially  the 
same  way  as  is  the  case  in  any  countrj'^  on  the  gold  standard. 

Incidentally,  too,  it  will  be  seen,  such  a  method  of  procedure  would 
make  but  a  small  demand  upon  the  gold  supply  of  Europe,  so  that  no 
serious  apprehension  on  that  score  need  be  felt. 

If  the  above  considei-ations  hold,  a  so-called  adverse  l^alance  of 
trade,  like  that  of  China,  need  prove  of  slight  importance  as  a  hin- 
drance to  the  introduction  of  a  gold-exchange  system  if  proper  meas- 
ures be  adopted. 


II.  CONSIDERATIONS  ON  A  NEW  MONETARY  SYSTEM  FOR  CHINA." 

By  .Jeremiah  W.  Jenks.  Cojumissioiicr  in  China. 

I.  INTRODUCTION. 

1.  PURPOSE  OF  THE  I'AMPIILET. 

Several  months  ago  the  (\)nnnission  on  International  Exchange 
published  at  Shanghai  a  pamphlet.  Memoranda  on  a  New  Monetary 
83^stem  for  China,  prepared  by  Mr.  Jenks.  In  that  pamphlet  were 
given  the  reasons  why  the  United  States  Government  had  appointed 
the  Connnission  on  International  Exchange,  a  very  brief  outline  of 
the  ])lan  which  was  suggested  for  the  consideration  of  the  Chinese 
Government,  together  with  some  arguments  regarding  the  plan,  and  a 
brief  statement  of  the  work  Avhich  the  Commission  had  done  in  Eu- 
rope and  elsewhere.  It  has  been  found  that  owing  to  the  bi-evity  of 
the  pamphlet  several  parts  of  it  were  misunderstood,  especially  by 

"A  transliitioii  into  (TiiiU'se  of  tho  first  paniitlilet,  made  by  Mr.  Sao-ke  Alfred 
Sze,  one  of  the  secretaries  of  the  C'oinniissioii  on  Internationa!  Exchange,  was 
})ublished  at  the  same  time.  This  paniplilet  will  also  he  piiljlished  in  Chinese 
througli  the  courtesy  of  their  Excellencies  Lii  ITai-Hwan  and  Shoiii?  Ilsiian- 
Iluai,  treaty  commissioners  of  China.  The  translations  into  Chinese  have  heen 
made  for  the  most  part  by  Mr.  Sze.  Chapters  X,  XII.  XIII,  XVI,  were  trans- 
lated hy  Mr.  E.  T.  Williams,  (Jhiuese  secretary  of  the  American  legation  at 
Peking. 

S.  Doc.  128,  .58-3 8 


114  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

Chinese  officials  and  business  men,  and  very  man^^  inquiries  have  been 
made  for  a  more  detailed  discussion  of  many  of  the  points  therein 
raised. 

As  a  representative  of  the  American  Commission  on  International 
Exchange  the  writer  of  that  pamphlet  has  spent  several  months  in 
investigating  the  currency  question  in  China  Avith  the  aid  of  very 
many  officials  and  business  men  in  the  different  parts  of  the  Empire, 
and  in  discussing  the  outlines  of  some  practicable  plan  for  a  new 
monetary  system  especially  with  the  members  of  the  Monetary  Com- 
mission appointed  by  the  Imperial  GoA^ernment.  It  is  the  purpose 
of  this  pamphlet  to  elucidate  many  of  the  points  touched  upon  in  the 
first  pamphlet  by  printing,  with  here  and  there  slight  corrections  and 
elaborations,  a  series  of  papers  handed  to  the  Chinese  monetary  com- 
mission to  form  the  basis  of  discussions  with  them.  It  is  thought  that 
by  so  doing  a  much  more  definite  view  than  was  presented  in  the 
earlier  pamphlet  may  be  olitained  of  the  plan  Avhich  it  had  seemed  to 
the  Commission  on  International  Exchange  Avise  to  submit  to  the 
Chinese  Government  for  its  consideration.  This  method  will,  of 
course,  iuA^olve  considerable  re])etition  and  will  destroy  the  unity  of 
the  discussion.  On  the  other  hand,  it  Avill  emphasize  the  points  which 
haA^e  been  made  most  prominent  in  the  discussions. 

2.  TAVO  PLANS  SUGGESTED. 

It  will  be  noticed  in  the  foUoAving  memoranda  that  a  rather  sharp 
contrast  is  draAvn  betAveen  tAvo  possible  plans  of  procedure  on  the  part 
of  the  Chinese  GoA^ernment — (a)  the  establishment  of  a  new  uniform 
monetary  system,  consisting  of  silver  and  copper  and  possibly  nickel 
coins,  on  the  sih^er  basis,  the  question  of  the  establishment  of  these 
coins  at  a  fixed  A^alue  Avith  gold  being  a  matter  left  for  future  consid- 
eration, with  the  definite  idea,  nevertheless,  that  the  ultimate  aim  of 
the  GoA^ernment  is  the  establishment  of  the  system  on  a  gold  basis; 
(b)  the  establishment  of  a  monetary  system  consisting  of  silver, 
nickel,  and  copper  coins  Avhich  Avould  be  issued  by  the  Chinese  Gov- 
ernment at  a  fixed  A^alue  in  terms  of  gold  and  maintained  at  that  value 
thereafter. 

Very  many  of  the  persons  AAdio  had  earlier  been  giving  advice  to 
the  Chinese  Government  and  who  had  been  AAriting  on  the  subject  of 
monetary  reform  in  China  had  recommended  the  first  system,  be- 
lieving that  the  establishment  of  a  uniform  sih^er  currency  Avas  a 
useful,  if  not  CA^en  a  necessary,  preliminar}^  first  step  toAvard  the 
establishment  of  a  monetary  system  on  the  gold  basis,  and  the  ex- 
ample of  India  Avas  cited  as  a  case  in  point.  It  Avas  the  belief  of  the 
American  Connnission,  after  making  a  detailed  studj^  of  the  ques- 
tion, cA^en  before  its  representative  went  to  China,  that  it  Avould  be 
much  easier  for  China  to  folloAV  the  second  plan  and  to  establish 
its  coins  at  a  fixed  value  Avith  gold  from  the  beginning,  as  the  United 
States  has  done  so  successfully  Avithin  the  last  year  in  the  Philippine 
Islands.  The  American  representative  found,  on  taking  the  matter 
up  for  discussion  Avith  (lie  Chinese  GoAan-nment,  that  this  Govern- 
ment, very  naturally,  not  having  had,  as  yet,  opportunity  of  study- 
ing tiie  subject  thoroughly,  and  very  properly  tlesiring  to  proceed 
gradually  on  so  important  a  matter,  had  practically  adopted  the 
views  of  those  Avho  thought  it  Avas  best  first  to  establish  a  uniform 


GOLD    STANDAUD    TN    INTERNATIONAL    TRADK.  115 

silver  ciiiTciu'v  ^vithoiil  ivi'erence  to  its  gold  value.  In  consequence 
a  considerable  pai't  of  the  enei'^ies  of  the  coinniissioner  were  devoted 
to  the  discussion  of  this  (luestion.  It  is  a  pleasure  to  record  that  the 
views  of  the  American  Conunission  seem  finally  to  have  met  the  ap- 
proval of  a  goodly  iuuHl)er  of  the  Chinese  officials  as  well  as  of  sev- 
eral of  the  English  writers  and  business  men  who,  naturally  looking 
first  at  the  example  of  India,  had  advocated,  some  of  them  in  print, 
beginning  on  the  silver  basis.  Several  of  these  men  have  now  said 
that  a  further  study  of  the  question  has  convinced  them  that  the 
plan  suggested  by  the  American  Connnission  will  be  the  easier  for 
China  and  the  wiser  plan  for  her  to  follow.  There  is  good  reason  to 
believe  that  further  consideration  of  the  subject  in  detail  in  the 
light  of  the  experience  of  the  Philippines  and  of  the  changed  con- 
ditions of  the  silver  market  during  the  last  few  years  would  lead 
substantially  all  to  this  conclusion. 

It  is  difficult  to  follow^  the  course  of  reasoning  of  some  who  say 
that  it  is  impossible  to  put  a  monetary  system  on  a  gold  basis  until 
you  have  a  system  complete.  The  gold  value  attaches  to  each  of  the 
coins.  It  is  immaterial  logically  wdiether  that  value  is  given  to  them 
when  they  are  issued  or  later.  Practically,  as  will  ajipear  in  the  fol- 
lowing pages,  it  is  nnicli  simpler  and  more  profitable  to  give  them 
the  gold  value  one  at  a  time  as  they  are  issued  than  to  give  it  to  them 
all  at  once  when  millions  are  already  in  circulation  with  a  w" ell- 
known  silver  value. 

8.  PROCESS   OF    ESTABLISHING   A   MONETARY    SYSTEM. 

So  much  has  been  said  regarding  the  "  gradual  "  establishment  of 
a  monetary  system  in  China  and  of  taking  one  step  at  a  time  that  it 
seems  worth  while  in  this  introduction  to  consider  briefly  the  nature 
of  the  process  of  the  establishment  of  a  monetary  system,  in  order  to 
show  how  misleading  the  figure  of  speech  of  "  going  forward  step  by 
step  "  has  been.  The  subject  will  be  made  clearer,  of  course,  in  the 
detailed  discussions  which  follow. 

A  monetary  system  made  up  of  copper,  subsidiary  silver,  standard 
silver  and  gold  coins — to  omit  -representative  money,  like  bank 
notes — is  a  single,  complete,  organized  whole  which  must  be  built  up 
gradually.  The  building  of  this  structure  is  not  like  going  on  a 
journey,  in  which  one  can  take  one  step  forward,  then  another  step 
forward,  and  another  until  the  journey's  end  is  reached.  If  it  w^ere 
so,  one  should  begin  first  by  taking  the  step  which  Avill  lead  to  the 
copper  coinage,  and  one  should  completely  establish  the  new  copper 
coinage  throughout  the  country  until  the  people  became  used  to  that. 
The  next  step  should  then  be  taken  leading  to  the  subsidiary  silver 
coinage,  which  is  of  less  pure  silver  than  the  standard  coins.  One 
should  then  pause  until  the  copper  coins  haA^e  been  given  a  fixed 
value  in  terms  of  the  subsidiary  silver.  One  should  then  take  the 
next  step  forward  to  the  introduction  of  the  standard  sih^er  coins,  and 
should  then  wait  until  the  subsidiary  silver  and  coi)per  coins  have 
been  given  a  fixed  value  in  terms  of  the  standard  silver  coins. 
Finally,  one  should  ])roceed  to  the  fourth  step  of  introducing  gold 
either  in  the  form  of  coins  or  in  the  form  of  a  gold  reserve  which  can 
be  used  as  a  standard.  The  country  must  then  wait  until  the  stand- 
ard silver,  the  subsidiary  silver,  and  the  copper  coins  are  given  a  fixed 


116  GOLD   STANDARD   IN    INTERNATIONAL   TRADE. 

value  ill  terms  of  gold.  The  journey  would  then  be  complete.  When 
one  analyzes  this  process,  including  the  silver  and  copper,  it  is  seen 
that  the  idea  is  absurd.  Nevertheless,  it  is  equally  absurd  to  begin 
with  silver  and  afterwards  go  to  gold  as  it  would  be  to  begin  with 
copper  alone,  proceed  to  subsidiary  silver,  and  then  to  standard  silver. 
The  process  in  both  cases  is  identical. 

The  establishment  of  a  complete  monetary  system  is  rather  like 
building  a  house  with  four  sides,  one  wall  of  which  is  represented 
by  the  copper  coinage,  a  second  wall  by  the  subsidiary  silver  coins, 
a  third  wall  by  the  standard  silver  coins,  and  the  fourth  by  the  gold. 
The  structure  must  be  built  up  gradually,  but  it  is  wise  to  build  the 
four  sides  up  together,  so  that  the  relations  between  them  will  be  the 
same  from  the  beginning,  and  that,  as  the  building  rises,  there  will 
be  no  disturbance  in  their  relations  one  to  the  other.  In  the  plan 
which  has  been  proposed  twenty  years  is  allowed  for  this  period  of 
building  the  structure.  The  cost  has  been  estimated  in  detai)  for 
the  first  five  years.  The  cost  in  succeeding  years  would  be  relatively 
less  and  would  need  no  special  provision.  The  system  Avould  pay 
for  itself  after  the  first  five  years.  But  the  completion  of  the  mone- 
tary system  is  planned  to  take  twenty  years,  surely  a  long  enough 
time,  and  the  process  is  a  gradual  one. 

The  plan  of  beginning  on  a  silver  basis  to  change  to  a  gold  basis 
later  is  like  building  up  three  walls  of  the  house  together,  omitting 
the  fourth  wall.  It  will  take  practically  as  many  years  to  build  the 
three  walls  as  it  Avould  to  build  the  four.  After  the  twenty  years 
are  completed,  nnless  some  specific  provision  has  been  made  for  the 
accumulation  of  a  gold  reserve,  it  may  take  many  years  longer 
])efore  that  is  accumulated.  Wlien  the  Government  begins  to  estab- 
lish the  gold  standard — that  is,  to  build  the  fourth  wall  of  the  l)uild- 
ing  which  has  been  left  out — all  of  the  arrangements  of  the  house, 
which  have  been  made  heretofore  with  reference  to  having  one  side 
open  to  the  air,  must  be  altered  to  suit  the  new  conditions,  with  the 
result  that — to  drop  the  figure — there  will  be  a  complete  upsetting 
and  disarrangement  of  the  business  relations  of  the  country.  In 
other  words,  the  Avhole  system  of  prices,  which  has  been  adjusted  to 
the  silver  standard,  must  be  upset  and  readjusted  to  the  gold 
standard.  That  jjrocess  of  readjustment  will  continue  several  years 
at  best.  In  consequence,  if  the  Government  adopts  the  silver  i)lan, 
it  is  simply  postponing  indefinitely  giving  to  China  a  good  mone- 
tary system,  and  it  is  increasing  vastly  the  difficulties,  as  is  explained 
in  detail  later. 

In  the  plan  which  the  American  Commission  has  proposed,  in  five 
or  six  years  tliere  will  be  enough  of  the  new  money  in  circulation  so 
that  j)ri('es  in  all  the  treaty  ports  and  in  all  international  traffic  will 
be  adjusted  to  the  ncAV  gold  standard,  so  far  as  the  peoj^le  have  any 
desires  so  to  adjust  them.  The  gradual  extension  of  the  system  into 
the  interior  as  the  new  coins  increase  in  number  will  involve  no  new 
disturbances.  The  change  from  a  standard  of  prices  fixed  on  bul- 
lion silver  to  those  fixed  on  a  standard  dollar  with  a  gold  value  is 
not  appreciably  more  difficult  than  the  change  from  prices  on  the 
bullion  standard  to  those  on  a  dollar  standard  on  the  silver  basis. 
There  must  be  at  least  one  disturbance  of  pri(;es;  it  will  be  much  less 
con  the  Avhole  if  it  is  taken  directly  from  the  beginning,  and  it  will 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       117 

save  complotoly  tho  trouble  and  oxponso  of  a  second  roadjnstmoiit 
from  the  sliuidard  silxcr  dollars  to  <:()ld  after  the  one  from  l)ullion 
to  standard  silver  dollars  has  been  made.  To  beiiin  with  the  silver 
plan  with  a  ^old  standard  only  for  the  indeiinite  future  is  like  set- 
ting up  an  engine  to  run  imperfectly  for  years  without  the  governor, 
with  the  idea  that  this  can  be  attached  later.  The  engine  should 
have  all  its  essential  parts  when  it  begins  to  run. 

4.  OUTLINE  OF  THE  AMERICAN  PLAN. 

It  is  perha,ps  wise  to  indicate  in  outline  at  the  beginning  the  main 
points  of  the  plan  Avhich  has  been  advocated  by  the  American  Com- 
mission in  order  that  the  papers  that  follow  may  take  their  places 
as  a  more  detailed  explanation  of  a  system  already  outlined.  The 
following  is  therefore  submitted : 

(a)  The  Chinese  (lovernment  to  assume  supervision  or  control  of 
the  various  provincial  mints,  so  that  the  entire  coinage  system  of  the 
Em])ire  will  be  managed  in  harmony. 

(b)  The  establishment  of  one  uniform  system  of  imperial  coins, 
consisting  of  silver  coins,  nickel  coins,  and  copper  coins,  Avhich  shall 
be  uniform  throughout  the  Empire,  and  in  due  time  a  legal  tender 
for  all  obligations,  public  and  i)rivate;  the  minting  of  all  other  coins 
to  be  stopped. 

{c)  These  silver,  nickel,  and  copper  coins  to  be  established  on  a 
decimal  system  and  to  b(;  maintained  at  proportionate  values  one  to 
the  other. 

(d)  A  gold  unit  consisting  of  a  fixed  number  of  grams  or  deci- 
grams of  gold  to  be  established  as  the  basis  of  the  currency.  The 
silver  and  copper  coins  to  be  issued  at  fixed  values  proportional  to 
this  unit,  and  to  be  maintained  thereafter  at  this  fixed  gold  value. 
It  is  luiderstood  that  gold  will  not  be  used  in  general  circulation 
within  the  country  itself,  although  a  small  amount  may  be  coined, 
but  that  the  currenc}^  shall  be  the  silver  and  copper  coins  above  men- 
tioned and  bank  notes  based  upon  them. 

(e)  The  establishment  of  a  gold  reserve  sufficient  to  maintain 
these  coins  at  the  fixed  gold  value,  but  not  necessarily  to  furnish  a 
gold  circulation  for  the  country  itself. 

(/)  The  Chinese  Government  to  manage  this  system  in  accordance 
with  the  principles  established  elsewhere  by  successful  experience; 
and,  therefore,  in  order  to  secure  the  necessary  confidence  of  Chinese 
and  foreign  business  men,  to  employ  to  assist  in  the  establishment  of 
the  system  foreign  expert  advisers  of  the  highest  standing  whose 
reputation  and  work  will  secure  confidence, 

(g)  The  establishment  of  a  national  bank,  of  subordinate  treasury 
agencies,  and  of  other  means  that  may  be  recommended  by  the  experts 
and  that  may  prove  essential  for  the  successful  carrying  out  of  the 
system. 

II.  UNIFORMITY  OF  COINAGE. 

Action  will  need  to  be  taken  by  the  Government  covering  the  fol- 
lowing points: 

1.  Declaring  that  there  is  to  be  established  a  uniform  system  of 
coinage,  arranged  on  the  decimal  plan,  and  that  the  coins  will  in  due 


118  GOLD    STAND AED    IN    INTERNATIONAL   TRADE. 

time  be  made  legal  tender  throughout  the  Empire  for  the  payment 
of  public  and  private  debts. 

2.  The  central  Government  assumes  charge  of  all  mints;  this  action 
to  take  effect  as  soon  as  compensation  is  determined. 

3.  The  provinces,  on  agreement  with  the  viceroys  and  governors 
concerned,  are  to  receive  due  compensation  for  all  the  mints  surren- 
dered to  the  central  Government;  this  compensation  presumabl};  to 
be  in  the  form  of  a  certain  amount  paid  each  year  for  a  fixed  number 
of  years,  or  a  remission  of  taxes  of  a  fixed  amount  for  the  same 
period. 

4.  All  coinage  of  present  coins  by  the  different  mints  to  be  stopped 
immediately,  unless  it  should  be  decided  to  adopt  into  the  system  the 
10  cash  pieces  and  to  continue  their  coinage  temporarily.  That  would 
probably  not  be  wise. 

5.  Expert  appraisers,  presumably  three,  two  from  the  mints  now 
in  existence  in  China,  and  the  third  to  be  hired  presumably  from 
abroad,  to  be  appointed  to  appraise  the  value  of  the  mints  on  the 
basis  of  their  normal  output  as  a  basis  for  agreement  with  the  vice- 
roys. This  output  to  be  gauged  in  part  by  what  they  have  been  doing 
in  the  past,  but  especially  by  the  fair  normal  capacity  of  the  mints 
themselves. 

6.  These  same  appraisers  to  make  detailed  recommendations  as  to 
the  mints  that  can  be  used  most  profitably  in  the  future,  as  to  those 
which  should  be  closed  absolutely,  and  as  to  the  transfers  of  mint 
machinery  or  the  purchases  of  ncAV  machinery  that  should  be  made. 

7.  Detailed  reports  of  all  coins  of  all  denominations  heretofore 
issued  by  each  one  of  the  mints  to  be  secured  from  the  various  vice- 
roys and  governors  concerned. 

8.  The  best  estimate  possible  to  be  secured  of  the  money  now  in  use — 
(a)  coins  of  silver,  {b)  silver  bullion,  sycee,  (c)  gold  of  whatever 
form,  (d)  cash  of  whatever  form,  cents,  etc. 

9.  Regulations  to  be  made  regarding  the  denominations  of  the 
various  new  coins,  with  their  exact  weights  in  silver,  nickel,  and  cop- 
per, the  amount  and  quality  of  the  alloy,  etc. 

III.    METIiODS    OF    FIXING  VALUES    OF    SUBSIDIARY  AND    MINOR 

COINS. 

1.  BUSINESS  FIXES   VALUE. 

The  business  men  will  ultimately  fix  the  values  at  which  the  people 
will  take  the  coins,  since  the  people  use  the  coins  in  buying  and  sell- 
ing with  the  merchants,  bankers,  etc.,  who  in  such  matters  are  more 
influential  and  powerful  than  the  common  people;  but 

2.  GOVERNMENT  MAY  DETERMINE  BUSINESS  ACTS. 

The  Government  can  make  such  arrangements  regarding  coinage 
and  the  receipt  and  issue  of  coins  that  the  business  men  and  people 
will  find  it  to  their  advantage  to  accept  ami  use  the  Government  val- 
uations : 

(a)     MaKK    SlIliSIDIAKY    AND    MiNOK    CoiNS    LESS    VALUABLE    AS    BULLION. 

Let  sul)sidiary  and  minoi"  coins,  both  silver  and  copper,  never  he 
proportionately  more  valuable  as  bullion  than  are  the  large  coins; 
usually  they  may  be  much  less  valuable. 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  119 

{!>)     I,l.Mir    Ql'ANTITV. 

So  far  as  is  j^racticahle  suit  I  lie  (|iiaii(i(y  of  coins  issued  to  business 
needs.  At  first  this  can  not  be  measured  accurately;  later,  experience 
will  show  the  right  amounts. 

(c)   Always  Kiockive  Coins  at  Face  Vai.ite. 

L3t  the  Government  always  receive  coins  at  their  face  value  in 
the  payment  of  taxes.  For  this  purpose  the  quantities  of  subsid- 
iary silver  to  be  received  at  any  one  payment  might  be  limited  to 
sums  of  not.  over,  say,  $20  for  50-cent  pieces,  and  to,  say,  $10  for  20- 
cent  and  10-cent  i)ieces.  Quantities  of  copper  to  be  received  at  one 
payment  may  be  limited  to,  say,  $5  for  20  and  10  cash  pieces ;  to  $1  for 
smaller  pieces. 

(f/)    Interchange  Small  Coins  for  Large  and  vice  versa. 

Let  the  Government  at  its  established  agencies  keep  a  good  supply 
of  all  kinds  of  coins,  and  exchange  them  free  of  charge  one  for  the 
other  for  all  applicants  in  reasonable  amounts  (say  as  above  in  re- 
ceiving taxes^,  dollars  for  subsidiar}^  silver,  nickel,  or  copper  coins, 
and  vice  versa. 

(e)   Make  Coins  Legal  Tender. 

Ultimately,  when  the  value  is  firmly  established  at  the  Government 
rate,  let  decrees  be  issued  nudcing  it  legal  for  every  debtor  to  pay  his 
debts  in  whichever  coins  he  chooses  within  the  limits  set  in  (c). 

3.  IF  ABOVE  PLAN  FOLLOWIOD  ESPECIALLY 
((Z)   Value  Will  be  Maintained. 

If  there  are  plenty  of  places  v^^here  these  exchanges  can  be  made, 
no  one  will  give  eleven  10-cent  pieces  for  a  dollar  when  at  the  Gov- 
ernment office  he  can  always  get  a  dollar  for  ten  of  them. 

IV.   ADVANTAGES    OF  A  FIXED    GOLD    VALUE    FOR    THE  CHINESE 

CURRENCY. 

In  the  imperial  edicts  of  April  22,  September  7,  26,  and  29,  1903, 
the  encouragement  of  commerce  and  industry  was  emphatically  an- 
nounced as  the  present  policy  of  the  Government,  and  the  board  of 
commerce  was  established  in  order  to  carry  out  that  policy.  Per- 
haps in  no  other  single  w^ay  can  this  purpose  be  accomplished  so 
promptly  and  surely  as  by  the  establishment  of  a  monetary  system 
which  has  a  fixed  value  with  gold.  It  io  worth  while  to  note  the 
following  benefits  which  would  come  therefrom: 

L  A   FIXED   KATE   OF   EXCHANGE. 

It  removes  the  fluctations  in  exchange.  This  makes  business  much 
more  secure,  and  takes  away  from  it  the  gambling  element.  During 
the  year  190.')  the  Shanghai  tael  varied  in  average  monthly  value  from 
2s.  If  d.  in  March  to  2s.  7d.  in  October,  a  variation  of  5|d.  Often  there 
are  strong  fluctuations  in  one  day  with  no  cause  that  can  be  foreseen. 


120  GOLD   STANDARD    IN    INTERNATIONAL   TRADE. 

In  Japan  there  used  to  be  similar  fluctuations,  but  they  have  prac- 
tically entirely  ceased.  For  example,  some  two  years  and  a  half  after 
the  fixing  of  the  rate  of  exchange  the  fluctuations  of  the  yen  were 
only  between  2s.  0.1250d.  and  'is.  0.8125d. ;  that  is  to  say,  less  than 
seven-tenths  of  a  penny  in  two  and  a  half  years.  This  practically 
eliminates  all  business  risk  from  this  source. 

((/)   Effect  on  I'rices  in  Foreign  Trade. 

It  should  be  noted  also  that  this  removal  of  risk  from  business 
will  have  a  tendency,  on  the  one  hand,  toward  increasing  the  prices 
paid  by  foreigners  for  Chinese  goods  for  export,  and,  on  the  other 
hand,  toward  lessening  the  prices  for  goods  impoi-ted  into  China 
from  foreign  countries  for  the  use  of  the  Chinese  people.  With  the 
risk  eliminated,  the  competition  of  merchants,  both  importers  and 
exporters,  will  lead  them  to  take  less  average  profits  than  now. 

(h)   Effect  on   Internal  Trade. 

These  advantages  of  stability  in  foreign  trade  wdll  be  reflected 
also  to  a  greater  or  less  extent  in  domestic  trade,  Avhile  the  favorable 
effects  upon  prices  will  be  felt  in  all  parts  of  the  country  to  a  note- 
worthy extent  in  the  internal  trade.  The  chief  curse  to  internal 
trade  now  is  the  variety  of  taels  and  fluctuations  in  internal  exchange. 
While  a  uniform  silver  currency  would  to  a  great  extent  cure  this 
evil,  it  can  never  be  permanently  cured  until  the  silver  currency  is 
given  a  gold  basis.  A  change  from  a  uniform  silver  to  a  gold  basis 
after  a  few  years  w^ould  produce  a  business  upheaval  worse  than  a 
present  change  from  a  variety  of  taels  to  a  uniform  silver  currency 
which  has  a  fixed  gold  value.  No  especial  difficulty  will  be  felt  now 
in  introducing  a  new  currency  on  either  a  gold  or  a  silver  basis.  It 
Avill  seem  but  one  more  added  to  many  existing  standards.  When 
there  is  once  uniformity,  a  change  of  basis  wdth  a  complete  upsetting 
of  established  prices  means  a  crisis. 

(c)  Effect  on  Quantity  of  Exports  and  Imports. 

This  removal  of  risk  from  business  will  tend  also  to  increase  de- 
cidedly both  the  import  and  export  trade  of  China.  After  Russia 
had  established  her  system  on  a  gold  basis  her  foreign  trade  increased 
very  decidedly,  and  a  similar  result  was  shown  in  Japan.  Count 
Matsukata,  the  Japanese  finance  minister  under  whom  the  change 
was  made,  says  that  on  account  of  the  freedom  from  fluctuations  in 
the  value  of  coinage  and  also  in  prices,  connnercial  and  industrial 
enterprises  came  to  make  a  healthy  and  orderly  development,  while 
trade  with  the  gold-standard  coiuitries,  which  comprises  the  largest 
part  of  Japan's  foreign  trade,  for  the  same  reason,  was  also  making 
a  very  healthy  gi-owth.  Even  as  regards  the  trade  with  the  silver 
countries,  where  ])eop]e  had  feared  that,  on  account  of  the  change,  the 
country  might  be  at  a  disadvantage,  there  was  a  considerable  increase 
in  the  foreign  trade.  It  was  his  opinion  that  trade  would,  on  the 
whole,  be  benefited. 

The  statistics  of  Japan  seem  to  show  that  the  change  to  the  gold 
standard  does  not  itself  increase  imports,  on  the  Avhole,  more  than  it 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       121 

increases  exports,  as  some  people  aro-ue.  On  aceoimt  of  the  large 
speculative  business  in  fJa[)an  at  the  time  of  the  payment  of  the 
Chinese  indemnity,  <lui'in<i;'  the  year  preceding-  tlic  establishment  of 
the  gold  system  and  for  two  }'ears  thereafter  there  was  a  ver}'  decided 
increase  in  the  imports  as  compared  with  the  exports,  but  since  that 
time  there  has  been  a  decided  decrease,  so  that  in  1899  and  1901,  for 
example,  the  imports  exceeded  exports  by  only  a  very  slight  amount, 
in  1900  there  being  again  an  increase.  The  figures  seem  to  show  that 
the  relative  (juantity  of  the  imjiorts  as  compared  with  the  exports  are 
due  mainly  to  other  factors  and  practically  not  at  all  to  the  quality 
of  the  currency.  The  ligures  i-egarding  the  excess  of  imports  and 
exports  relatively  from  1894  to  1901,  inclusive,  are  as  follows: 

Table  I.« 

Yen. 

Excess  of  imports.  1894 4,  235,  809 

Excess  of  exports,  1895 0,851,600 

Excess  of  imports : 

1«tO 53,  831,  714 

1897 56, 16.5,  694 

1898 111, 748,  404 

1899 5,472,032 

1900 82,  831,  8.52 

1901 3,  467,  102 

The  law'  establishing  the  new  gold  system  was  passed  in  March, 
189T.  It  went  into  operation  September  30,  1897,  but  it  was  not 
fullv  in  effect  until  July,  1898.  The  great  excess  of  imports,  there- 
fore, is  as  much  during  the  period  of  silver  coinage  as  of  gold,  and 
there  was  a  great  fall  tlie  year  after  the  establisliment  of  the  new 
system,  the  excess  of  imports  almost  disappearing. 

2.  COINAGE  PROFIT. 

Giving  to  the  Chinese  coins  a  fixed  value  in  gold  would  give  to  China 
a  very  large  profit  from  the  coinage.  At  the  present  prices  of  silver 
and  copper  the  profit  on  each  dollar  coined,  on  the  average,  may  be 
conservatively  estimated  at  20  per  cent.  During  the  last  year  the  prof- 
its in  the  Philippines  have  been  o^'er  19  per  cent,  and  the  touch  of  the 
subsidiary  silver  coins  there  has  been  higher  than  would  be  necessary 
for  China.  Probably,  also,  the  amount  of  copper  coins,  on  which  the 
profit  is  much  greater  than  on  the  silver,  Avould  be  larger  in  China 
than  in  the  Philippines.  The  vice-minister  of  finance  in  japan,  Mr. 
Sakatani,  has  estimated  that  China  might  count  on  an  average  profit 
of  30  per  cent.  Estimating  the  profit  at  only  20  per  cent  on  a  prob- 
able output  of  250  million  dollars  of  her  new  coins  within  the  first 
four  or  five  years,  China's  gain  would  be  50  million  dollars.  This 
should  be  made  to  form  a  very  large  proportion  of  a  gold  reserve. 

Moreover,  if  every  effort  were  made  to  keep  all  of  the  coins  at  a 
fixed  value  one  with  the  other,  it  would  be  possible  to  issue  the  sub- 
sidiary coins  at  a  lower  touch  than  if  they  were  to  have  their  value 
fixed  by  ordinary  custom  among  the  merchants.  Whether  the  coins 
are  given  a  fixed  gold  value  or  not,  effort  should  be  made  (and  the 
methods  are  not  at  all  difficult)  to  keep  up  the  value  of  the  subsidiary 
coins  to  their  face  value,  but  if  the  coins  were  given  a  fixed  gold 
value  this  would  be  absolutely  essential  and  would  certainly  be  done. 

«  The  Fourth  Financial  and  Economical  Annual  of  Japan,  1904,  p.  67. 


122       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 
3.  INCREASE  OF  INVESTMENTS. 

Fixing  the  value  of  the  coins  in  terms  of  gold  would,  beyond 
question,  increase  such  investments  of  a  conservative  nature,  both 
foreign  and  native,  as  the  Chinese  Government  would  wish.  Count 
Matsukata,  in  referring  to  the  result  of  the  reform  of  the  currency 
in  Japan,  said  that  the  tendency  had  already  promptly  set  in  to  in- 
vest in  that  country,  at  low  rates  of  interest,  capital  from  gold- 
standard  foreign  countries,  thus  supplying  the  lack  of  capital  in  the 
country  and  giving  a  powerful  stimulus  to  the  development  of  indus- 
try. This  was  seen  within  two  years  after  the  establishment  of  the 
system. 

Statements  were  likewise  made  to  the  representatives  of  the  Mex- 
ican Government  by  leading  financiers  in  New  York  that  they  had 
money  ready  to  the  amount  of  at  least  50  million  dollars  gold,  in  spe- 
cific cases  which  they  mentioned,  to  invest  immediately  in  Mexico  as 
soon  as  the  fixed  value  for  the  Mexican  coins  should  have  been  estab- 
lished. Doubtless  this  sum  would  have  been  very  largely  increased. 
China  might  well  expect  much  greater  results,  owing  to  the  much 
greater  opportunities  for  investment  here  and  to  the  larger  extent  of 
her  undeveloped  resources. 

Unless  there  are  ])olitical  considerations  which  lead  to  investments, 
money  will  be  oll'ered  much  more  freely  for  building  railroads,  open- 
ing mines,  and  maiving  public  improvements  of  all  kinds  if  China 
has  a  sound  monetary  system  on  a  gold  basis.  The  conservative 
business  men  of  the  industrial  nations  will  gladly  invest  when  they 
can  make  certain  calculations.  Before  then  we  may  expect  invest- 
ments rather  from  speculators  or  from  those  who  have  some  political 
schemes  to  further.  After  railroads  are  built  and  trade  on  a  large 
scale  in  the  interior  is  established,  a  sound  coined  money  on  a  stable 
basis  will  be  a  necessity.  Trade  can  not  grow  satisfactorily  under 
present  currency  conditions. 

4.  STRENGTHENED  CREDIT. 

Probably  no  other  action  on  the  part  of  the  Chinese  Government 
would  strengthen  its  credit  among  foreign  nations  so  much  as  the 
establishment  of  a  sound  monetary  system  which  would  fix  the  value 
of  its  money  in  terms  of  gold.  This  would  enable  her  to  borrow 
money  much  more  cheaply  than  at  present,  and  quite  possibly  to 
refund  some  of  her  foreign  debts  at  lower  rates  of  interest. 

I'he  experience  of  Japan,  as  stated  by  Count  Matsukata,  was  this: 
Within  three  j'ears  after  the  system  was  established,  he  says,  "  It  may 
be  regarded  as  a  happ}'^  omen  that  the  Government  was  able  to  raise 
I'ecently  a  foreign  loan  of  £10,0()0,0{)0  in  London  at  4  per  cent  inter- 
est." He  ascribed  this  result  to  the  improved  credit  of  the  country, 
due  to  the  establislmieiit  of  the  new  system.  If  China  could  refund 
her  debts  whi(;h  now  bear  interest  above  4  per  cent  at  that  rate,  it 
would  eti'ect  a  saving,  if  we  assume  the  tael  to  be  worth  only  2s.  Gd., 
of  JJ,18G,400  taels  a  j^ear.  That  alone  would  more  than  pay  the 
interest  on  all  the  loan  she  would  probably  need  to  make  to  establish 
the  new  system  with  an  ample  gold  reserve,  if  she  desired  to  adopt  a 
system  with  a  loan. 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  123 

5.  CEin'AINTV    KKCAIfDIXC    'I'AXIOS. 

Beside  (ho  [)()ssil>ility  ot  ivl'iiii(liii<2;  her  debts,  il'  the  price  of  silver 
shouhl  continue  to  (h>cline.  China  could  pay  ott'  her  present  debts 
much  more  easily  Avith  her  currency  ffiven  a  fixed  gold  value.  Dur- 
ing the  past  fifteen  years  the  decline  in  the  value  of  silver  has  les- 
sened tho  income  of  CMiina,  as  compared  witli  what  it  Avould  have  been 
on  a  golil  i)asis,  bv  nearly  one-iialf,  the  avei'age  value  of  the  tael  in 
1890  being-  5s.  2|d.,  and  during  the  year  1903  •2s.  7§d.,  while  it  has 
been  at  times  even  considerably  lower.  As  soon  as  the  new  mone- 
tary system  is  estal)lished,  there  Avill  be  no  further  decline  in  the 
value  of  the  taxes  collected;  and  even  if  silver  should  not  decline 
further,  there  woidd  be  a  decided  advantage  to  the  Government  in 
being  able  to  reckon  accurately  on  the  value  of  the  taxes  collected 
for  the  purpose  of  paying  foreign  obligations. 

The  chief  danger  to  China  in  her  relations  with  foreign  countries 
comes  from  considerations  of  a  financial  nature.  If  she  at  any  time 
fails  to  pay  her  obligations,  the  danger  of  aggression  w^ill  be  very 
great  indeed.  On  the  other  hand,  in  no  other  way  can  she  so 
strengthen  her  military  force  or  her  resources  in  other  directions 
which  would  be  available  for  defense  against  aggression  as  by  im- 
j)roving  her  financial  situation.  In  no  other  way  can  her  financial 
situation  be  improved  so  rapidly  as  by  establishing  a  monetary'' 
system  which  will  have  the  full  confidence  of  Chinese  business  men 
as  well  as  of  foreigners,  and  such  a  system  can  never  be  satisfactory 
to  either  Chinese  or  foreigners  until  the  coins  have  a  fixed  value  in 
terms  of  gold.  It  is  clearly  within  the  power  of  China  to  establish 
such  a  S3'stem  in  the  immediate  future  by  taking  energetic  measures. 

V.  REASONS    FOR    ADOPTING    A    GOLD    VALUE    FOR    THE    SILVER 
COINS  AT  THE  BEGINNING  OF  THE  SYSTEM. 

1.  GOVERNMENT  PROFIT. 

The  Government  will  gain  a  profit  from  coinage  of  some  15  per 
cent  more  than  would  be  possible  if  the  system  were  introduced  on  the 
silver  basis.  On  the  gold  basis  the  average  profit  should  be  at  least 
20  per  cent ;  on  the  silver  basis,  possibly  5  per  cent.  Unless  this 
profit  is  made  when  the  coins  are  first  introduced,  it  can  never  be 
made  afterwards.  This  additional  gain  should  amount  to  a  yearly 
profit  of  $6,000,000  or  thereabouts  throughout  the  introduction  of 
the  system,  say  ten  to  twenty  years.  It  would  be  increased  or  les- 
sened in  proportion  to  the  rapidity  of  coinage  and  in  part  to  the  price 
of  silver.  It  would  last  as  long  as  the  new  coinage  continued  to  be 
introduced.  Can  the  Chinese  Government  in  its  present  financial 
situation  afford  to  neglect  this  source  of  profit? 

2.  NO  DISTURBANCE  OF  BUSINESS. 

If  the  coins  are  introduced  at  their  gold  value  while  l)usiness  is 
being  done  with  so  many  other  kin.ds  of  coins  and  Avith  bullion, 
there  will  be  no  a[)preciable  disturbance  of  business.  Prices  are  now 
fixed  in  so  many  different  kinds  of  moneys  that  an  addition  of  one 
kind  more  would  not  be  noticeably  detrimental.  It  would  be  only 
like  introducing  a  new^  kind  of  tael. 


124  GOLD   STANDARD   IN   INTERNATIONAL   TRADE. 


3.  IF  INTRODUCED  AT  SILVER  VALUE  DISTURBANCE  WILL  FOLLOW. 

If  the  coins  are  first  introduced  at  their  silver  vahie  and  an  attempt 
is  later  made  to  give  them  a  gold  value,  the  result  is  almost  sure  to 
be  a  great  disturbance  of  business  over  a  period  of  several  years. 

(a)  Result  of  Fall  in  I'rice  of  Silver — Case  of  India. 

If  it  were  certain  that  the  value  of  silver  bullion  would  continue  to 
fall,  so  that  the  Government  could  simply  fix  the  gold  value  of  the 
new  coins  at  the  silver  value  of  the  day  when  the  Government  starts 
on  the  gold  value,  and  that  the  silver  bullion  value  of  the  coins  would 
then  continue  to  decline,  there  would  be  no  serious  disturbance  of  bus- 
iness. Both  Japan  and  India  were  extremely  fortunate  in  fixing  their 
gold  values  under  such  circumstances.  At  that  time,  however,  not 
only  was  silver  bullion  steadily  falling  in  the  world  market,  but  it 
was  known  that  the  stoppage  of  the  free  coinage  of  silver  in  India 
would  certainly  cause  a  fall  in  silver  bullion,  so  that  India  might 
safely  count  on  that  result,  inasmuch  as  its  action  would  lessen  for 
the  time  being  the  demand  for  silver  by  some  ten  or  twelve  million 
ounces  yearly. 

At  present,  however,  in  China  the  situation  is  entirely  different. 
No  act  of  China's  is  likely  to  have  any  effect  toward  lowering  the 
price  of  silver,  and  even  if  its  action  were  to  have  that  effect,  this 
would  take  place  immediately  upon  the  introduction  of  the  new  sys- 
tem, so  that  the  gold  value  should  be  fixed  then  rather  than  later.  In 
the  second  place,  the  condition  of  the  silver  market  for  the  last  two  or 
three  years  has  been  such  that  one  may  anticipate  a  rise  in  silver  as 
fully  as  probable  as  a  fall.  There  is  practically  no  increase  of  out- 
put ;  there  is  a  large  increase  in  demand ;  there  is  a  large  increase  in 
the  output  of  gold.     There  are  certain  to  be  fluctuations. 

(6)  Result  of  Rise  in  Price  of  Silver. 

If  the  price  of  silver  does  not  fall,  the  Government  must  ultimately 
fix  the  gold  value  of  its  silver  coins  at  considerably  above  their  bul- 
lion value — say  15  per  cent,  at  least.  If  it  should  fix  the  rate  at,  say, 
only  5  per  cent  above,  any  slight  rise  in  the  market  value  of  silver 
would  be  sufficient  to  lead  to  the  melting  or  exportation  of  the  silver 
coins.  A  slight  fall  would  again  lead  to  their  coinage,  and  so  on, 
making  the  system  very  unstable.  We  must  not  forget  tliat  in  1903, 
which  was  by  no  means  a  bad  year,  the  average  monthly  rate  of  ex- 
change in  Shanghai  varied  as  much  as  20  per  cent. 

China  might  and  should  make  arrangements  so  that  a  permanent 
rise  of  any  extent  in  the  value  of  silver  bullion,  which  should  lead  to 
the  melting  of  the  silver  coins,  would  bring  about  the  introduction  of 
gold  coins ;  but,  on  the  other  hand,  it  is  doubtless  better,  considering 
business  conditions  in  China,  that  silver  coins  be  the  chief  medium  of 
exchange  rather  than  gold,  although  the  value  should  be  fixed  in  gold. 
A  large  bulk  of  the  business  of  China  is  on  so  small  a  scale  that  gold 
coins,  wliich  would  not  be  convenient  in  sizes  worth  less  than  $5,  are 
not  adapted  to  the  needs  of  the  peoi)le.  On  this  account,  Mexico  for 
its  own  use,  the  United  States  for  the  Philippines,  England  for  India 
and  the  Straits  Settlements,  and  France  for  French  Indo-China,  are 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  125 

providing]:  systems  with  silvor  coins  to  Avhicli  they  have  <2:iveii  or  ex- 
pect to  o^ive  a  gokl  vahie,  rather  than  real  o-okl  systems  with  jrold  in 
cirenlation. 

The  eonntry  needs  small  chang-o,  at  any  rate,  even  though  it  should 
have  gold  coins.  The  (lovernment,  therefore,  if  it  takes  any  risk  of 
having  its  silver  dollars  melted  down,  shoidd  keep  the  half  dollars, 
20-cent  pieces,  and  10-cent  pieces  more  nearly  free  from  that  danger 
by  making  them  eight-tenths  fine,  while  the  dollar  pieces  are  nine- 
tenths  fine. 

(c)   Result  of  Raising  Value  of  Coins  afi-ek  Circulation  Established. 

If  the  Government  fixes  the  gold  value  at,  say,  15  per  cent  above  the 
bullion  value  after  the  silver  coins  are  once  in  general  circulation, 
there  must  be  a  great  disturbance  of  business.  The  only  way  (short 
of  an  artificial  scarcit^s  which  Avill  seriously  injure  business  and 
which  it  Avould  be  extremelj^  difficult  to  enforce  in  China)  to  give  the 
coins  that  higher  gold  value  is  for  the  Government,  after  they  are  in 
circulation  and  after  it  has  been  receiving  them  at  a  certain  fixed  rate, 
to  say  that  it  Avill  receive  them  at  a  higher  rate  and  for  it  to  be  pre- 
pared to  sell  gold  exchange  at  this  higher  rate.  For  example,  if 
to-day  a  silver  dollar  is  worth  48  cents  gold  (xVmerican)  the  Govern- 
ment must  say  that  it  will  receive  it  for,  say,  the  next  two  months  at 
50  cents  gold,  for  the  two  months  thereafter  at  52  cents,  and  so  on, 
until  it  has  reached  the  required  value.  If,  now,  it  should  increase 
the  rate  at  all  rapidh^,  the  result  woidd  be  that  the  banks  and  wealthy 
people  would  hoard  great  sums  of  money  in  order  to  secure  these 
higher  rates.  There  would  be  a  great  scarcity  of  coins  and  business 
would  be  seriously  hampered.  Wealthy  people  who  could  thus  hoard 
would  make  large  profits  at  the  expense  of  prosperity  in  trade. 

If  the  Government,  to  prevent  this  speculation,  should  raise  the 
rate  gradually,  at,  say,  not  over  5  per  cent  a  year,  bringing  it  up 
slowly  month  by  montli,  it  would  extend  the  period  of  unsettled  busi- 
ness, of  changing  and  gradually  lowering  prices,  etc.,  over  several 
years,  which  might  well  produce  a  serious  commercial  crisis. 

A  failure  on  the  part  of  the  Chinese  Government  to  begin  on  the 
gold  sA'stem  now  means,  therefore,  that  it  is  taking,  first,  an  abso- 
lutely certain  loss  of  many  millions  of  dollars  to  begin  with,  and,  sec- 
ond, a  xcrj  serious  danger  of  a  future  hampering  of  business  for  sev- 
eral years,  and,  at  any  rate,  it  must  take  a  miu-h  more  complicated 
process  in  the  future  in  reaching  a  gold  system  than  it  need  take  if  it 
starts  now  on  a  fixed  gold  basis. 

VI.  METHODS  OF  MAINTAINING  THE  SILVER  AND  COPPER  COINS 
AT  A  FIXED  VALUE  WITH  GOLD. 

1.  GOVERNMENTAL  CONTROL  OF  COINAGE. 

The  Government  must  absolutely  control  the  coinage  and  must 
limit  the  quantity  of  coins  to  the  actual  needs  of  business. 

It  is  impossible  to  keep  the  value  of  silver  coins  above  their  bullion 
value  unless  the  Government  itself  keeps  rigid  control  of  the  mints. 
Private  individuals  must  neither  be  allowed  to  coin  by  themselves, 
nor  must  they  be  allowed  to  determine  in  any  w  ay  the  quantity  which 


126       GOLD  STANDAED  IN  INTERNATIONAL  TRADE. 

the  Government  shall  coin  or  to  determine  individually  the  amount 
of  money  in  use.  In  consequence,  besides  tlie  Government  control  of 
the  mints,  it  is  desirable,  and  Avill  ultimately  l)e  necessary,  that  the 
Government  be  able  to  stop  the  importation  of  foreign  coins  and  bul- 
lion, except  on  Government  account,  or  that  by  other  measures,  such 
as  taxation,  it  make  it  more  disadvantageous  to  use  them  than  to  use 
the  ncAV  Government  coins. 

This  limitation  and  control  is  absolutely  necessary  for  the  follow- 
ing reasons : 

(n)  Value  Depends  upon  Quantity. 

The  value  of  coins,  as  well  as  of  goods  of  all  kinds,  depends,  to 
a  considerable  extent,  upon  the  quantity  of  them  which  are  available 
for  use  in  proportion  to  the  demand  for  them,  just  as  flour  or  cloth 
becomes  more  expensive  wdien  the  quantity  is  scarce  and  decreases  in 
value  when  there  is  a  surplus  on  hand.  So  the  coins,  by  being  fewer 
in  number  than  the  merchants  might  readily  make  use  of,  will 
acquire  an  added  value,  while,  if  the  merchants  were  allowed  to  coin 
them  freely,  there  might  easily  come  to  be  an  oversupply,  so  their 
value  would  fall  to  the  value  of  the  silver  bullion  which  they  contain. 

In  establishing  a  fixed  gold  value  for  the  silver  coins  in  India, 
the  government  depended  for  some  years  upon  scarcity  alone.  Before 
1893  the  mints  had  been  open  to  the  free  coinage  of  silver.  On  the 
26th  of  June  of  that  year  the  mints  were  closed,  and  for  some  years 
no  more  were  coined.  At  first  the  value  of  the  coins  declined,  there 
being  a  large  supply  in  circulation;  but  after  a  time,  inasmuch 
as  the  quantity  was  limited  and  no  further  coins  were  supplied, 
there  came  a  strong  demand  for  more  to  supply  the  growing  needs  of 
business.  Then  the  value  of  those  in  circulation  began  gradually 
to  increase  until  it  reached  the  price  which  had  been  fixed  by  the 
Government — 1  shilling  and  4  pence  to  the  rupee.  When  this 
point  was  reached,  and  there  came  a  further  demand  from  the  mer- 
chants, they  were  ready  to  pay  gold  to  the  Government  in  order  to 
have  the  Government,  for  their  convenience,  coin  more  rupees  at  that 
price — 1  shilling  and  4  pence.  It  must  not  be  forgotten,  how- 
ever, that  the  scarcity  hampered  business  for  a  time  by  raising  the  rate 
of  interest.  In  a  similar  way  it  would  be  wise  for  China  to  declare 
that  she  would  furnish  lier  new  silver  coins  to  any  amount  on  the 
demand  of  merchants,  provided  they  would  pay  a  corresponding- 
amount  of  gold  into  the  treasury  at  the  fixed  value  determined. 
On  no  other  condition,  however,  should  the  merchants  be  permitted 
to  demand  of  the  Government  an  increase  in  the  number  of  silver 
and  copper  coins. 

The  merchants  shovdd  be  permitted  to  have  gold  coins  furnished 
them  at  any  time  either  with  or  without  payment  of  a  reasonable 
mintage  charge,  as  seems  best  when  the  system  is  established,  in 
exchange  for  gold  l)ullion  which  they  themselves  pay  in. 

(h)  Value  Depends  upon  Confidence. 

In  order  to  maintain  tlie  value  of  the  new  coins,  it  is  also  necessary 
tliat  the  Government  secure  and  keep  the  confidence  of  the  public 
in  connection  with  its  management  of  the  ncAv  system.     This  can  be 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  127 

done  best  by  maintaiiiiiiii'  al)soluto  faith  as  regards  (he  quality  of  the 
coins,  by  the  eniployineiit  of  th(>  ablest  experts  of  the  highest  reputa- 
tion, and  by  publicity  in  connection  with  the  management. 

Heretofore  the  mints  liave,  at  times,  used  a  hirger  amount  of  alloy 
than  Avas  provided  in  tlie  law,  and  there  has  been  no  proper  check 
over  the  asseys.  In  consecjuence  the  ])ublic  has  lost  confidence  in  the 
coins  of  some  of  the  mints.  This  must  never  be  i)ermitted  to  happen 
in  comiection  Avitli  the  ncAV  coins.  Each  melting  for  coinage  must  be 
carefully  assayed,  and  mider  no  circumstances  should  any  coins  be 
minted  that  are  not  of  the  right  (pudity.  Tn  order  to  secure  the  confi- 
dence of  the  public,  coins  taken  at  random  from  the  different  mints 
from  time  to  tim(^  should  be  tested  by  assayers  not  connected  with 
the  mints  and  tlieir  reports  published.  It  would  be  well  also,  for  a 
time,  to  have  coins  selected  at  random  by  persons  not  connected  with 
the  Government  or  with  the  mint  management  and  sent  to  foreign 
mints  to  be  assayed  and  reported  on.  The  confidence  of  the  public, 
both  Chinese  and  foi'cign,  must  be  secured  and  kept. 

Publicity  regarding  the  quantities  coined  and  put  into  circulation 
will  likewise  tend  to  give  confidence  in  the  wisdom  of  the  Government 
management,  and  such  publicity  should  be  encouraged. 

The  confidence  of  the  public,  in  the  first  place,  is  necessary  in  order 
to  maintain  the  value  of  the  silver  coins;  and,  in  the  second  place, 
this  confidence  would  be  profitable  to  the  Government  inasmuch  as, 
when  the  people  trust  the  Government,  the  gold  reserve,  which  it  will 
need  to  carry,  may  be  much  smaller  than  will  be  the  case  if  they  dis- 
trust the  Government. 

2.  UNIVERSAL  ACCEPTANCE  OF  COINS  BY  GOVERNMENT. 

The  Government  must  receive  its  new  coins  at  all  times  without 
hesitation  anywhere  in  the  Empire  in  the  payment  of  any  obligations 
due  it. 

(a)  The  acceptance  of  the  coins  without  question  by  all  Govern- 
ment officials  will  give  the  j^ublic  confidence  in  the  good  faith  of  the 
Government. 

(?>)  This  acceptance  by  the  Government  makes  also  a  demand  for 
the  new  coins  which  Avill  tend  to  keep  up  their  value.  AVhile  the 
supply  of  coins  is  still  limited  to  an  amount  less  than  the  ordinary 
demands  of  business  require,  this  Government  demand,  of  itself, 
might  possibly  be  sufficient  to  maintain  the  value  at  the  gold  rate. 

In  some  countries  the  annual  revenue  receipts  of  the  government 
amount  proliably  to  25  per  cent  or  more  of  all  the  money  in  circula- 
tion. P^ven  though  the  annual  revenue  of  China  should  be  consider- 
ably less  than  that,  the  Government  demand  would  still  be  very  great. 

(c)  It  Avould  be  Avell,  in  the  first  place,  probably,  not  to  comiDel  the 
officials,  even  in  the  provinces  where  the  coins  are  introduced,  to  pay 
to  the  board  of  revenue  more  than,  say,  one-quarter  and  afterwards 
one-half  of  their  revenue  in  the  ncnv  coins,  the  amounts  in  every  case 
being  adapted  to  local  conditions  and  to  the  local  supply  of  the  new 
coins;  l)ut  finally,  of  course,  they  and  all  taxpayers  should  be  com- 
pelled to  i)ay  all  of  their  money  taxes  in  the  new  coins.  There  should 
be,  of  course,  no  interference  in  this  connection  with  the  payment  of 
certain  taxes  in  kind.  From  the  beginning,  however,  all  of  the  offi- 
cials should  be  compelled  to  receive  from  the  people  at  their  full  gold 


128  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

value  all  of  the  new  coins  offered  to  pay  obligations  due  to  the  Gov- 
ernment. Otherwise  confidence  in  the  Government  would  be  lost  and 
its  credit  would  be  seriousl}^  injured. 

If  the  introduction  of  the  new  coins  is  made  locally,  ]:)rovince  by 
province,  it  might  very  likely  be  possible  almost  from  the  beginning 
to  compel  the  people  in  the  localities  where  they  are  introduced  to 
pay  all  of  their  money  taxes  in  the  new  coins.  Of  course  if  a  tax- 
payer does  not  have  enough  of  the  new  coins  in  hand  to  pay  his  taxes, 
the  Government  will  provide  means  through  exchange  shops  with 
fixed  rates  to  supply  his  needs,  as  will  be  explained  in  connection  with 
administrative  organization. 

.3.  MAKE  COINS  LEGAL  TENDER. 

In  due  time  the  coins  must,  by  law,  be  made  legal  tender  (the  legal 
money  in  which  private  debtors  ma}^  pay  their  debts).  A  law  of  this 
kind  is  usual  in  all  countries  where  a  developed  monetary  system 
exists.  It  tends,  of  course,  to  add  to  the  demand  for  the  new  coins 
and  thus  to  keep  up  their  value. 

Such  a  law  should  not  apply  to  debts  made  before  the  new  coins 
are  put  in  circulation.  The  people  should  also  be  permitted  to  make 
specific  contracts  payable  in  anything  they  like,  but  all  contracts 
made  paj'able  simply  in  the  money  of  the  country,  such  as  dollars 
or  taels,  the  debtor  should  be  permitted  -to  pay  in  these  new  coins. 
If  the  creditor  objects,  the  debtor  should  still  have  the  privilege  of 
paying  the  new  coins  into  the  court  for  the  creditor  and  of  having 
the  debt  discharged.  This  law  should  not  be  passed  at  first,  but 
after  the  people  have  become  accustomed  to  the  new  coins  and  know 
their  real  value. 

4.  GOVERNMENTAL  SALE  OF  GOLD  EXCHANGE. 

The  Government  should  be  ready  at  all  times  after  the  coins  are 
put  into  circulation  to  sell  in  exchange  for  these  coins  at  their  gold 
value,  on  demand,  in  amounts  of  not  less  than  $5,000,  orders  (bills 
of  exchange)  payable  in  gold  in  London,  New  York,  or  Yokohama, 
at  rates  slightly  more  advantageous  than  the  usual  banking  rates. 
If,  for  example,  the  usual  average  charge  of  the  banks  throughout 
the  year  is,  exclusive  of  fluctuations  in  the  value  of  silver  bullion, 
say,  three-quarters  or  seven-eighths  of  1  per  cent,  the  Government 
might  offer  to  sell  at,  say,  1  per  cent  or  1^  per  cent. 

(a)  Gold  Needed  for  Payment  of  Foreign  Debts  Only. 

Inasmuch  as  business  conditions  in  China  (the  low  rates  of  wages, 
the  low  scale  of  prices,  the  great  number  of  very  small  transactions, 
etc.)  do  not  require  the  use  of  gold  in  ordinary  trade,  there  is  no 
reason  why  the  Government  should  offer  to  redeem  the  new  coins  in 
China  itself  in  gold. 

For  the  payment  of  obligations  to  creditors  in  foreign  countries, 
however,  gold  is  needed;  and  in  no  other  way  can  the  Government 
so  easily  secure  the  confidence  of  the  great  merchants  and  the  foreign 
bankers  as  by  supplying  gold  at  a  reasonable  charge  for  the  settle- 
ment of  these  foreign  debts. 


GOLD    STANDARD    IN    INTERNATIONAL    TRADPJ.  129 

For  the  last  thirty  years  Ilolhiiid  has  found  it  possil)le  to  main- 
tain for  her  silvei"  conis  a  fixed  \ahie  in  <;old  without  redeemiuir 
those  coins  in  oold  for  nse  witliin  the  country.  Slie  has  stood  ready, 
however,  to  furnish  <>()]d  at  any  time  for  the  payment  of  del)ts  abroad. 

India,  for  a  considerabU^  time,  maintained  the  vahie  of  her  silver 
coins  by  scarcity  alone.  This,  however,  Avas  always  at  a  considerable 
risk  that  the  coins  might  temjiorarily  at  any  time,  owing  to  a  slack- 
ening demand,  fall  somewhat  below  their  face  value,  and  of  late, 
since  she  has  a  large  gold  reserve,  India  has  also  been  ready  to  fur- 
nish gold  for  the  i)aynient  of  foreign  obligations. 

In  the  Phi li lupines  the  Government  relies  chiefly  upon  this  fur- 
nishing of  gold  by  means  of  bills  of  exchange  for  the  payment  of 
foreign  obligations  to  maintain  the  value  of  its  silver  coins,  although, 
inasnuich  as  it  had  a  considerable  quantity  of  gold  and  United 
States  currency,  which  is  at  a  par  Avith  gold,  on  hand  in  Manila,  it 
offered  temporarily  to  exchange  this  United  States  money  free  of 
charge  for  the  new  currency,  and  to  exchange  gold  for  the  new  cur- 
rency at  a  charge  equivalent  to  the  cost  of  importation. 

Instead  of  furnishing  gold  itself  for  the  payment  of  foreign  obli- 
gations, it  will  be  equally  useful  to  the  people  and  much  cheaper 
for  the  Chinese  Government  to  sell  bills  of  exchange,  as  indicated. 

(b)   Bankers  Will  Use  Coins  if  They  Can  Buy  Exchange. 

In  order  to  secure  public  confidence  in  the  new^  monetary  system, 
the  bankers,  especially  the  foreign  bankers,  and  the  great  merchants 
must  be  willing  to  receive  the  new  coins  at  their  gold  value.  If  the 
bankers  and  the  merchants  can  always  be  sure  of  buying  bills  of 
exchange  at  a  fair  charge  in  exchange  for  the  new  coins,  they  will 
ahvays  be  ready  to  receive  and  make  use  of  them  in  their  general 
business.  There  would  never  be  any  possibility  of  their  falling  in 
value  more  than  enough  to  cover  the  difference  l)etween  the  charge 
for  a  bill  of  exchange  which  the  bank  would  make  and  the  charge 
which  the  Government  Avould  make,  say  one-half  of  1  per  cent.  This 
amount  is  so  slight  that  it  Avould  never  be  felt  at  all  in  local  transac- 
tions: and,  as  a  matter  of  fact,  when  the  confidence  of  the  public  was 
secured,  the  difference  Avould  never  be  made  by  any  of  the  banks. 
Other  uses  of  the  coins  would  be  more  than  sufficient  to  cover  any 
slight  difference. 

(c)   Government  Rates  for  Exchange. 

The  Governmcnl  should  j^i-obably  charge  rates  somewhat  abov^e 
those  chai-ged  by  the  banks.  In  the  first  place,  the  Government  will 
probably  not  wish  to  compete  Avith  the  banks  in  their  oi'dinary  busi- 
ness. In  consequence,  it  places  its  rates  somewhat  higher  than  the 
banks,  in  order  that  the  banks  may  ordinarily  sell  the  usual  bills  of 
exchange.  The  Government  will  sell  them  only  for  the  purpose  of 
maintaining  the  value  of  the  silver  coins  when  +here  comes  an 
unusually  strong  demand  for  gold,  so  that  withour  action  on  the 
part  of  the  (Jovernment  the  value  of  its  siher  coins  might  fall. 

Should  the  (Jovernment  establish  a  national  bank  it  would  be 
possible  to  arrange,  of  course,  for  it  to  sell  bills  of  exchange  against 
S.  Doc.  128,  58-3 9 


130       GOLD  STANDARD  IN  INTERNATIONAL  TRADE, 

the  Government's  gold  reserve  at  the  usual  hanking  rates,  thus  com- 
peting with  the  other  banks.  It  would  probably,  however,  be  better 
for  the  Government  to  have  its  rate  fixed  in  the  law,  and  for  the 
national  bank  to  use  only  its  own  funds  and  not  the  Government 
funds  in  competition  with  other  banks. 

{(I)   Profits  from  Exchange. 

This  business  of  selling  bills  of  exchange,  under  the  circumstances 
indicated,  will  also  yield  to  the  Government  a  small  profit,  which 
should  be  placed  in  the  gold  reserve. 

5.  COINS  FURNISHED  IN  EXCHANGE  FOR  GOLD  AT  HOME  OR  ABROAD.  , 

The  measure  recommended  in  section  4  Avill  prevent  the  deprecia- 
tion of  the  silver  coins.  In  order  to  prevent  an  increase  of  the  value 
of  the  silver  coins  above  their  gold  value  fixed  in  the  law,  the  Gov- 
ernment should  agree  always  to  furnish  these  silver  and  copper  coins 
to  any  amount  at  their  face  value  in  exchange  for  gold  paid  in  to  the 
Government. 

This  gold  might  be  paid  in  either  to  the  treasury  in  China  or  to 
its  agencies  or  to  the  branches  or  agents  of  its  national  bank  abroad. 
In  the  latter  case  the  gold  paid  in  abroad  would  be  used  to  purchase 
orders  (bills  of  exchange)  payable  in  China  in  the  new  coins  at  the 
treasury  or  at  the  national  bank.  When  these  drafts  on  the  home 
Government  are  purchased  abroad  there  should  also  be  a  charge 
made,  as  in  the  case  of  gold  bills  of  exchange  sold  in  China  for  pay- 
ment abroad,  although  the  rate  of  exchange  may  not  be  the  same. 
This  would  likewise  bring  a  small  pi'ofit  to  the  Government,  and, 
what  is  of  greater  importance,  as  will  appear  later,  will  serve  to 
prevent  the  exhaustion  of  the  gold  reserve. 

VI,  A.  HOW    CAN    A  48-CENT    DOLLAR  BE   MADE  BY  THE  GOVERN- 
MENT TO  PASS  FOR  55  CENTS  GOLD.? 

[The   following   sums   up    iu    concrete   form   several   of  the   points   just   made 

in  VI.] 

A  silver  dollar  which  weighs  seventy-two  hundredths  of  a  tael  is 
worth  in  China  at  this  date  in  American  gold  about  48  cents.  If  that 
same  dollar  or  an  equal  Aveight  of  silver  could  be  given  by  action  of 
the  (ilovernment  a  value  of  55  cents  American  gold,  it  Avould  be  worth 
about  eighty-two  hundi-edths  of  a  tael.  The  (Jovernment  can  not,  by 
lucre  decree,  make  sevenly-two  hundredths  of  a  tael  worth  eighty-two 
huiKh'edths  of  a  tael,  but  it  can  take  other  measures  so  that  all  mer- 
chants will  readily  accept  it  at  that  value.  Exactly  that  kind  of 
result  is  secured  by  all  the  civilized  countries  except  China. 

The  following  shows  the  way: 

If  the  (yliinese  Government  takes  seventy-two  hundredths  of  a  tael 
of  silver  bullion,  coins  it.  and  calls  the  coin  the  "  imperial  coinage 
dollar,"  it  will  l)e  different  in  looks  from  any  dollar  now  in  circula- 
tion. Let  it  pay  this  new  coin  to  an  official  for  82  tael  cents;  that 
is,  if  it  owes  him  8.20  taels.  let  the  Government  pay  him  10  of  the 
new  dollars  instead  of  $11.38  of  the  present  dollars  as  the  equiva- 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  131 

lent  of  8.20  taels.     The  official  will  readily  take  the  new  dollars  at  the 
rate  of  82  tael  cents  under  the  following  conditions: 

1.  The  (Tovernment  agrees  always  to  take  the  new  dollar  anywhere 
in  the  Empire — Peking,  Shanghai,  in  Szechuan,  Honan,  or  elsewhere, 
instead  of  82  tael  cents  due  in  taxes  or  contributions  or  in  any  other 
debt  due  the  Government.  If  the  official  can  pay  it  to  the  Govern- 
ment for  82  tael  cents  and  the  Government  will  surely  receive  it  at 
that  rate,  he  will  not  object  to  taking  it. 

2.  The  Government  should  pass  a  decree  in  due  time,  after  the  peo- 
ple understand  the  plans  of  the  Government,  saying  that  anyone  who 
has  a  debt  to  pay  to  any  other  person  may  pay  it  in  the  new  dollars 
at  the  rate  of  $1  for  82  tael  cents.  If  the  people  know  that  the  Gov- 
ernment will  alwa^^s  back  them  in  paying  their  debts  with  the  dollar 
at  82  tael  cents,  they  will  not  object  to  taking  it  at  that  rate. 

3.  If  the  Government  says,  further,  that  it  will  take  these  new  dol-  ^ 
lars  and  give  in  exchange  for  them  an  order  to  pay  in  London  or  New' 
York  or  Yokohama  82  tael  cents'  w'orth  of  gold  for  each  new  dollar 
paid  into  its  bank,  all  the  foreign  banks  will  receive  them  at  that 
value,  for  they  are  buying  orders  on  those  places  every  day.  If  the 
foreign  banks  take  them  at  that  rate,  all  native  banks  and  merchants 
will  take  them  at  the  same  rate,  for  they  can  be  sure  of  paying  them 
out  at  that.  If  the  merchants  take  them  at  82  tael  cents,  all  the  peo- 
ple will  do  so,  for  they  will  know  that  they  may  pay  them  out  at  the 
same  rate. 

4.  The  Government,  too,  having  full  control  of  the  mints  will  not 
coin  more  of  these  coins  than  the  needs  of  business  demand,  so  that 
the  ]KH)i)le  will  always  be  using  all  that  are  in  circulation,  and  this 
also  will  keep  up  the  value. 

By  foUoAA  ing  these  methods  the  Government  could  without  cost  to 
itself  gain  a  profit  of  iO  tael  cents  on  each  new  dollar  coined.  It 
would  l)e  practically  as  easy  by  the  same  methods  to  nuike  a  profit 
of  12  or  15  cents,  and  it  would  probably  be  best  to  make  the  gain 
about  20  per  cent.  It  should  be  noted  that  this  profit  can  be  made  on 
each  piece  only  once,  and  that  is  when  it  is  first  coined  and  put  into 
circulation.  After  that  the  dollar  must  be  taken  in  by  the  Govern- 
inent  at  the  same  value  at  which  it  is  paid  out,  so  that  there  is  no 
profit. 

As  48  cents  gold  equals  about  72  tael  cents  and  55  cents  gold 
equals  about  82  tael  cents,  it  is  shown  above  how  a  48-cent  dollar  can 
be  made  to  pass  for  55  cents. 

It  is  important  to  note  that,  if  the  new  dollars  are  introduced  into 
circulation  in  the  way  indicated  above,  very  little  gold  will  be 
required  at  first,  and  the  gold  reserve  can  be  built  up  very  gradually 
as  the  new^  coins  go  into  circulation.  If  at  first  there  should  be 
distrust  on  the  part  of  the  people,  so  that  they  would  wish  to  bring 
the  coins  paid  out  to  them  back  to  the  Government  in  large  quanti- 
ties to  l)uy  gold  with,  it  Avould  be  Avell  to  have  on  hand  for  the  first 
few  months  a  very  largo  proportion  of  the  coins  issued.  For  ex- 
amjile.  for  the  first  million  dollars  issued  it  might  be  well  to  let  the 
people  know  that  the  (iovernment  had  $750,000  gold  in  reserve;  for 
the  second  million  issued,  say  $500,000— that  is,  $1,250,000  for  the 
two  millions  issued.  This  large  reserve  at  first  is  to  guard  against 
any  possibility  of  panic.  The  actual  demands  probably  w^ould  be 
trifling  from  the  first,  and  after  two  or  three  years  the  reserve  could 


132       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

probably  safely  be  cut  to  25  per  cent,  or  even  considerably  less,  pro- 
vided the  Government  had  made  arrangements  to  borrow  promptly 
on  short  notice. 

If  the  Government  pays  out  the  new  coins  for  salaries  and  sup- 
plies, deposits  them  in  the  banks,  gives  fair  rates  in  the  new  coins 
for  silver  sycee  and  cash  purchased,  receives  them  everywhere  for 
their  full  gold  value  in  taxes,  the  people  will  very  soon  gain  confi- 
dence and  all  persons  having  money  to  receive  either  for  goods  or 
for  services  will  soon  prefer  to  take  the  new  dollar  as  the  better  dol- 
lar and  the  one  steadier  in  value  rather  than  the  fluctuating  Peiyang 
dollar  or  the  inconvenient  tael  which  has  to  be  weighed. 

VII.  GOLD  RESERVE. 
1.  A  GOLD  RESERVE  NECESSARY. 

As  has  been  stated  before,  in  order  to  secure  public  confidence  and 
to  insure  from  the  beginning  the  maintenance  of  the  value  of  the  sil- 
ver coins  in  gold,  by  methods  which  we  have  already  discussed,  espe- 
cially by  selling  bills  of  exchange  on  a  gold  fund  held  mostly  abroad, 
it  is  necessar}^  to  have  a  sufficient  gold  reserve. 

It  should  be  kept  in  mind,  however,  that  the  quantity  of  the  gold 
reserve  required  on  the  system  i:)roposed  would  be  very  much  less  than 
if  the  redemption  of  the  coins  in  gold  on  demand  were  made  in  the 
country  itself.  ^Miile,  beyond  question,  Avhen  the  system  is  being 
introduced  there  would  be  a  certain  speculative  demand  for  bills  of 
exchange  from  ihe  interior  on  the  part  of  bankers  who  could  forward 
their  new  silver  coins  to  Shanghai,  Tientsin,  and  other  places  where 
the  banks  could  use  them  in  the  purchase  of  gold  exchange,  this 
speculative  demand  would  probably  not  last  very  long.  It  would 
depend  upon  the  fact  that  at  first  a  good  many  of  the  more  ignorant 
people  might  ]>e  willing  to  sell  the  new  coins,  which  would  seem  to 
them  of  light  weight,  at  rates  something  below  their  face  value.  This 
danger  could  be  largely  obviated  by  having  the  Government  give 
full  information  as  to  its  means  of  conducting  the  business,  and  by 
the  Government  itself  always  receiving  them  promptly  at  their  full 
gold  value  for  money  taxes  of  all  kinds.  This  purely  speculative 
demand  on  the  gold  reserve  Avould  of  course  stop  as  soon  as  the  com- 
mon people  kncAv  experimentally  that  the  Government  was  maintain- 
ing the  value  of  the  silver  coins. 

2.  AMOUNT  OF  RESERVE. 

The  amount  of  the  total  reserve  required  is  extremely  difficult  to 
determine  on  account  of  the  deficiency  of  statistics  in  China.  In 
actual  practice  it  must  be  determined  more  or  less  experimentally, 
depending  upon  the  demand  for  coins.  It  will  be  necessary,  on  ac- 
count of  the  lack  of  accurate  information,  to  make  ample  provision 
so  as  to  cover  all  risks,  and  to  see  to  it  that  there  is  enough  at  each 
stage  of  progress. 

According  to  estimates  made  by  the  best  experts  in  America  and 
Europe,  this  reserve  should  be,  for  a  considerable  time  at  least,  from 
25  to  30  per  (;ent  of  the  value  of  the  new  silver  coins  in  circulation. 

At  the  beginning,  while  the  change  from  the  old  system  to  the  new 
is  going  on,  it  will  be  necessary  to  have  this  gold  reserve  considerably 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  133 

larger  than  25  or  30  per  cent  of  the  coins  at  that  time  in  circuhition, 
inasnuich  as  there  is  likely  to  be  a  lack  of  confidence  at  first  which  may 
create  a  run  on  the  I'eserve.  Besides  this  fact,  there  will  also  be  other 
coins  and  bullion  in  circulation  for  a  considerable  time.  Tf  there 
should  be  a  slackening  of  business  or  a  very  strong  demand  for  gold 
bills  of  exchange,  the  witluh'awal  of,  say,  even  50  per  cent  of  the  new 
coins  in  circulation  might  not  contract  the  entire  currency  so  much 
as  would  later,  when  the  system  is  completely  established,  the  with- 
drawal of,  say,  10  per  cent.  After  the  system  is  thoroughly  estab- 
lished, it  is  probable  that  a  resrve  equal  to  10  or  15  per  cent  of  the 
circulation  will  be  sufficient  for  actual  use,  although  25  or  80  per  cent 
should  always  be  available  on  short  notice. 

In  consequence  of  the  fact  that  the  reserve  fund  may  be  put  to  only 
special  uses — i.e.,  to  the  redemption  of  the  new  silver  in  bills  of  ex- 
cliange,  etc. — it  will  doubtless  be  possible  to  keep  part  of  it  in  good 
foreign  bonds  on  which  cash  could  be  promptly  realized.  Again,  so 
far  as  a  part  is  concerned,  it  may  be  sufficient  possibly,  instead  of 
keeping  cash  or  bonds  on  hand,  for  arrangements  to  be  made  by  the 
Chinese  Government  for  a  mere  right  to  draw  bills  of  exchange  up  to 
a  certain  amount  on,  say,  two  days'  notice,  the  regular  rates  of  interest 
to  be  paid  only  on  the  amounts  drawn.  This  privilege  could  doubtless 
be  obtained  at  a  very  small  charge  if  the  management  had  the  confi- 
dence of  the  great  banking  houses. 

According  to  the  estimates  of  the  Director  of  the  Mint  of  the 
United  States,  the  stock  of  silver  in  China  at  the  present  time  is 
probably  in  value  750  million  dollars  Mexican,  in  round  numbers, 
say,  482  million  taels,  or,  say,  $337,400,000  American  gold.  If  we 
assume  a  population  for  China  of  400  million  (an  outside  figure; 
the  Director  estimates  330,100,000),  this  would  give  a  per  capita  cir- 
culation of  1.205  taels,  or  substantially  84.35  cents  gold.  If  the  new^ 
dollar  were  issued  at,  in  round  numbers,  2  shillings,  1  yen,  or  50 
cents  gold,  or  a  little  more,  it  would  doubtless  be  sufficient  for  the 
time  being  to  allow  two  of  the  new  coins  per  capita,  or  800  million 
for  the  entire  country  when  the  system  is  completed.  In  order,  how- 
ever, to  be  sure  to  cover  all  possible  expense  in  our  first  estimate,  we 
take  a  figure  more  nearly  like  that  of  India  and  assume  a  profitable 
circulation  of  some  8  shillings,  or  $2  American  gold,  or,  say,  four  of 
the  new  silver  coins  per  capita,  making  1,()00  million. 

At  the  present  time,  according  to  the  same  authority,  the  per  capita 
circulation  of  China  and  of  several  countries  which  may  be  com- 
pared with  it  is,  in  gold,  as  follows: 

Table  II. 

China   a  $i.  02 

Turkey    L 3.  75 

Japan 3.  24 

Cuba    J! 2.  19 

Bulgaria    1.  32 

India    2.  07 

Egypt 3.  71 

"The  figures  are  $2.27  Mexican,  which  would  amount  to  about  .?1.02  American," 
according  to  the  i)ri(e  of  silver  when  this  is  written.  No  other  country  in  the 
list  has  so  low  an  estimate.  One  of  the  best-informed  Chinese  bankers  esti- 
mates the  present  si]v(;i'  firculation  at  10(»  million  taels,  of  which  10  per  cent  is 
paiK'r  and  the  rest  bullion  or  dollar  coins.     He  estimates  the  copper  circulation 


134       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

Of  course  countries  with  more  highly  developed  business  have  a 
higher  ratio.     For  example: 

The  Straits  Settlements $8.03 

Great    Britain 18.  31 

Germany    20. 48 

United    States 29.  79 

I'rance 39.  22 

It  is  evident  that  four  new  dollars  per  capita  would  be  a  sufficient 
outside  amount  to  take  into  consideration  at  the  beginning  of  the  new 
system.  It  would  take  several  years  at  any  rate  to  have  the  system 
established  throughout  the  country,  and  experience  would  eventually 
show  the  amount  required.  While  the  conditions  in  China  resemble 
those  in  India  more  than  in  any  other  prominent  country  mentioned, 
the  probability  is  that  conditions  are  even  less  developed,  so  far  as 
the  use  of  money  is  concerned,  in  many  parts  of  the  interior  of  China 
than  in  India,  where  a  system  of  coins  has  been  in  use  many  years. 
It  should  be  noted  also  that  the  per  capita  circulation  in  India,  as 
given  in  the  table,  includes  11  cents  per  capita  for  paper  money 
uncovered. 

It  would  be  advisable,  of  course,  for  China  to  introduce  the  system 
first  in  the  treaty  ports  or  in  some  of  the  most  populous  provinces 
and  then  gradually  to  extend  the  system  throughout  the  country. 
The  poi3ulation  in  the  treaty  ports  probably  does  not  exceed  8  mil- 
lion, while  the  population  of  the  four  provinces  which  contain 
Shanghai,  Canton,  Tientsin,  and  Hankow  is  about  100  million.  If 
we  assume  that  China,  within  the  first  five  years  (after)  she  began  the 
coinage,  coidd  supply  400  million  of  the  new  coins,  that  would  cover 
practically  all  parts  of  the  country  which  have  any  direct  dealings 
with  foreign  countries  or  which  can  be  considered  commercial  to  any 
noteworthy  extent.  A  system  that  is  made  thoroughly  successful 
in  these  sections  of  tlie  countr}^  and  with  this  class  of  the  population 
for  a  series  of  years  will,  without  especial  difficulty,  make  its  way 
through  the  rest  of  the  country.  An  actual  reserve,  therefore,  of, 
say,  33Jj  per  cent  of  this  sum  of  400  million  of  new  reserve  coins,  with 
the  privilege  of  increasing  it  to  50  per  cent  or  even  to  double  the 
original  amount  in  case  of  need,  would  certainly  be  ample  provision 
to  make  for  tlie  introduction  of  the  system.  It  Avould  not  be  neces- 
sary, of  course,  for  the  entire  final  reserve  to  be  raised  within  the 
first  four  or  five  years  after  the  system  is  started.  If  the  amount 
mentioned  above  were  sufficient  to  carry  it  through  the  first  five  or 
six  years  with  safety,  experience  would  show  how  to  take  care  of  the 
system  from  that  time  on;  but  according  to  all  reasonable  calcula- 
tions, if  the  price  of  silver  were  to  remain  wdiere  it  is  now  or  not  to 
increase  considerably,  the  profits  from  the  coinage  alone  would  prob- 
ably prove  ample  thereafter  to  continue  the  reserve  at  a  sufficient 
figure  until  the  completion  of  the  system. 

The  figures  given  above  are  the  highest  that  the  writer  has  ever 
heard  estimated,  and  are  given  as  outside  figures  which  would  be  safe 
under  the  most  adverse  circumstances.     On  the  basis  of  most  esti- 

at  .50  million  taels.  of  which  50  per  cent  is  paper.  He  thinks  the  country  needs 
more  money,  but  gives  that  as  the  present  amount.  That  estimate  allows  only 
37..")  tacl  cents  per  cai)ita,  or  50  cents  at  a  population  of  300  million,  the  least 
assumed.  Unless  this  estimate  is  ridiculously  wrong,  an. allowance  of  two  new 
dollars  per  capita  is  ample  lor  the  present. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       135 

unites,  and  tlioso  lari^cly  of  Europeans  long  resident  in  China  as 
bankers  and  nierehants,  one-half  of  the  sums  mentioned  wouhl  prob- 
ably suflice.  and  those  are  the  figures  recommended  as  best  to  assume. 
It  would  doubtless  do  to  begin  the  system  on  one-half  the  estimates 
given  all  around,  provided  arrangements  were  made  to  increase  in 
case  of  necessity  to  the  higher  figures,  and  })rovided  also  that  the 
management  were  watchful  and  skillful  and  had  the  confidence  of 
the  public,  native  and  foreign.  The  figures  are  tabulated  by  years 
of  work  in  the  next  Chapter,  \'III. 

3.  USES  OF  THE  RESERVE. 

This  has  been  explained  sufficiently  for  present  purposes  in  earlier 
discussions. 

4.  MEANS  OF  OBTAINING  A  RESERVE. 

( « )   Profits  on  Coinage. 

The  profits  of  the  coinage  of  the  silver,  nickel,  and  copper  coins, 
if  the  prices  of  silver  and  copper  do  not  increase  materially,  ought 
to  amount  to  as  much  as  20  per  cent.  The  experiences  of  the  Philip- 
pines and  of  Japan  seem  to  justify  this  estimate  as  reasonably  con- 
servative. Of  course  all  would  depend  upon  the  value  which  the 
government  determines  to  give  to  the  coins,  and  it  can,  watliin  reason- 
able limits,  fix  its  profits.  According  to  the  best  experts  it  is  desira- 
ble that  the  face  value  of  the  silver  coins  })e  at  least  15  per  cent  above 
the  usual  bullion  value  in  order  to  prevent  the  danger  of  the  melting 
down  of  the  coins  if  there  should  be  an  increase  in  the  price  of  silver 
bullion,  which  would  make  the  coins  more  valuable  as  bullion  than 
s  coins.  On  the  other  hand,  it  is  not  desirable  that  the  profits  be 
\  )0  high  on  account  of  the  danger  of  counterfeiting.  It  is  probable 
that  so  far  as  the  unit  coin  (the  dollar)  is  concerned,  a  reasonably 
safe  profit  of  about  15  per  cent  is  about  right.  From*the  present 
outlook  regarding  the  future  price  of  silver  the  margin  had  better  be 
somewhat  above  15  per  cent  rather  than  below  it.  On  the  subsidiary 
silver  coins,  on  account  of  the  less  danger  of  counterfeiting,  and  also 
because  the  principle  of  scarcity  can  be  applied  somewhat  more 
rigidly  to  maintain  their  value,  a  somewhat  higher  profit  may  be 
made.  If  the  dollar  coins  are  nine-tenths  fine,  it  is  entirely  possible 
that  the  subsidiary  silver  coins  might  be  made  eight-tenths  fine.  The 
disadvantage  of  the  larger  amount  of  alloy  in  the  subsidiary  coins 
is  that  people  might  at  first  hesitate  somewhat  about  receiving  them ; 
but  that  danger  would  soon  be  overcome  if  the  government  adopted 
the  right  measures  of  interchanging  them  for  dollar  coins  on  demand. 
The  second  danger  of  greater  importance  is  that  of  counterfeiting. 

On  the  nickel  and  copjjer  coins,  of  course,  a  much  greater  ])rofit  can 
readily  be  realized.  On  such  coins  a  profit  from  50  to  100  ])er  cent  is 
not  unusual.  As  in  China  the  quantity  of  copper  and  subsidiary  sil- 
ver coins  would  be  unusually  large,  a  profit  of  20  per  cent  on  the  en- 
tire coinage  for  fi-ve  years  is  probably  safe  to  assume.  Mr.  Sakatani, 
vice-minister  of  finance  of  Japan,  assumes  a  profit  of  30  per  cent. 

It  should  be  kept  in  mind  also  that  if  an  increase  in  the  value  of  sil- 
ver bullion  lessened  materially  the  profit  of  the  Government,  it  would 
also  lessen  the  Government's  risk  at  the  same  time.     A  decided  rise 


186  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

in  silver  in  the  London  market  woiikl  rather  have  a  tendency,  other 
things  equal,  to  lessen  the  demand  on  the  gold  reserve,  both  by  en- 
couraging the  j^ayment  of  foreign  obligations  through  the  export  of 
silver  and  by  giving  confidence  in  the  Government  as  the  risk  from 
depreciation  of  its  coins  lessened.  Moreover,  if,  owing  to  a  threat- 
ened exhaustion  of  its  gold  reserve,  it  were  eventually  forced  to  sell 
some  of  its  silver  coins  to  meet  a  temporary  emergency,  it  would  real- 
ize a  higher  price  for  them.  In  no  event  would  it  lose  more  than  the 
cost  of  coinage  and  freight,  unless  the  bullion  value  of  silver  fell  be- 
tween the  time  of  its  purchase  of  bullion  and  sale  of  coin. 

The  profit  on  coinage  should  all  be  devoted,  for  a  considerable  time 
at  least,  to  the  purchase  of  gold  for  the  gold  reserve.  If  it  should  be 
necessary  to  get  any  considerable  extra  sum  in  hand  at  any  one  time, 
it  would  be  possible  to  use  this  reserve  and  the  silver  on  hand  as  a 
basis  for  a  temporary  loan  of  a  few^  months,  provided  the  Government 
authorities  had  the  full  confidence  of  business  men.  It  probably 
would  not  be  wise,  however,  to  count  on  this  as  a  basis  for  any  but  a 
temporary  loan. 

{h)  Contributions. 

The  Government  has  already  made  provision  for  the  accumulation 
of  a  gold  reserve  by  permitting  contributions  from  certain  classes  of 
officials  to  be  paid  part  in  gold  or  in  silver  at  the  ratio  of  32  to  1.  It 
might  be  well  to  encourage  as  far  as  possible  the  income  from  this 
source.  Possibly  other  similar  sources  can  be  discovered  w^hich  will 
acid  considerable  sums  to  the  gold  reserve. 

(c)  Loan. 

The  Chinese  (xovernment  might  very  profitably,  considering  the 
importance  of  the  change  of  the  monetary  system  and  the  profits  of 
coinage,  make  a  loan,  of  which  a  large  part  of  the  proceeds  should  be 
placed  in  tke  gold  reserve.  The  direct  gain  from  profits  of  coinage 
alone  ought  to  make  this  loan  very  profitable,  even  if  the  extra  capi- 
tal needed  had  to  be  borrowed.  In  private  life  to  borrow  at  G  or  7 
per  cent  and  to  make  '20  per  cent  is  considered  very  good  business. 
China  ought  to  be  able  to  make  better  rates  than  those. 

If  the  foregoing  estimates  regarding  the  profits  from  coinage  are 
not  excessive,  it  will  be  noticed  that  these  profits  will  amount  regu- 
larly, at  the  rate  of  coinage  suggested  as  sufficient  for  beginning,  to 
$8,000,000  a  year  for  a  period  of  twenty  years  if  the  smaller  estimates 
are  taken;  to  double  that  if  the  larger  are  assumed.  If  the  rate  of 
coinage  were  increased,  the  income  would  be  proportionately  in- 
creased, altliough  the  time  of  its  duration  might  be  correspondingly 
lessened. 

However,  even  if  this  ])rofit  of  S,  or  1('>  million  dollars  a  year  is 
made  for  the  (government  so  that  it  becomes  Government  propert3^ 
it  could  probably  not  be  used  for  anytliing  else  tlian  a  goUl  reserve; 
that  is  to  say,  it  could  not  become  one  of  the  regular  revenues  of  the 
(rovermnent  to  be  applied  to  other  i)urposes,  at  any  rate  for  a  consid- 
erable time.  Later,  part  of  it  miglit  possibly  be  used  in  such  a  way. 
On  the  other  hand,  uidess  the  statements  made  heretofore  regarding 
the  benefits  to  Cliina  of  a  monetary  system  established  on  this  basis 
are  grossly  mistaken,  the  indirect  benefits  to  Cliina  from  the  system 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       137 

would  amount  to  imicli  more  tlian  the  cash  profits  from  tho  coinaij^e 
thus  phicod  in  the  i»()kl  reserve,  liefore  the  system  were  entirely  com- 
pleted it  is  probable  tiiat  a^  a  result  of  its  establishment  the  added 
revenue  to  the  country  from  other  sources  would  be  enough  to  much 
more  than  pay  the  expenses  of  any  loan  required.  P]very  increase  in 
imports  or  exports  increases  both  customs  and  likin  receipts,  while  in- 
vestments and  confidence  lead  to  increased  revenue  from  other  sources. 

In  estinuiting  the  expenses  of  a  loan,  also,  it  should  be  kei)t  in  mind 
that,  so  far  as  the  loan  is  required  for  the  gold  reserve,  a  considerable 
part  of  it  could  be  kept  as  a  current  balance  in  the  banks  either  at 
home  or  abroad,  and  thus  be  made  to  realize  a  considerable  return  in 
interest,  doul)tless  '2  per  cent,  and  in  some  cases  more.  The  govern- 
ment of  the  Philippine  Islands  luis  realized  3^  per  cent.  If  experi- 
ence showed  that  the  demand  on  the  gold  reserA'e  was  cornparativeh^ 
small,  a  considerable  jjortion  might  also  be  kept  invested  in  securities, 
Chinese  or  foreign,  which  Avould  pay  part  of  the  expenses  of  the  loan, 
probably  8  to  4  per  cent.  At  least  half  of  the  reserve,  on  the  average, 
might  thus  draw  interest:  probably  a  much  larger  proportion  than 
one-half  might  secure  some  income. 

As  a  basis  for  a  loan,  if  any  is  needed,  the  following  sources  are 
suggested : 

(1)  Increased  ret  urns  from  customs. — The  annual  increase  of  the 
I'eturns  from  the  imperial  customs.  The  annual  income  at  the  time 
of  the  establishment  of  the  indemnity,  it  is  understood,  was  prac- 
tically all  required  for  the  payment  of  that  indemnity.  The  trade  of 
China,  however,  is  rapidly  increasing,  and  there  is,  in  consequence,  a 
large  anmuil  inci-ease  in  the  returns  from  the  customs.  If  the  Gov- 
ernment can  secure  its  support  on  the  basis  of  the  income  of  three 
years  ago  and  assign  this  increase  in  the  customs  to  the  establishment 
of  a  monetary  system,  this  nnght  be  used  as  the  basis  of  a  considerable 
loan. 

(2)  Opium.,  spirits.,  etc. — From  investigations  made  throughout 
the  provinces,  it  is  evident  that  the  Chinese  Government  is  not  receiv- 
ing, either  through  the  central  government  or  through  tne  provincial 
governments,  nearly  so  large  an  income  from  opium,  spirits,  tobacco, 
and  other  similar  products  as  is  usual  in  other  civilized  countries. 
In  the  United  States,  for  example,  the  central  Government  alone  de- 
rives from  the  manufacture  and  first  sale  of  such  products,  mostly 
spirits  and  tobacco,  ordinarily  nearly  half  of  the  entire  national  rev- 
enue. Besides  this,  the  municipalities  derive  a  large  additional  in- 
come from  licenses  issued  to  shops  where  these  products  are  sold.  In 
India,  in  1002.  the  Government  derived  from  opium  alone  a  revenue 
of  72,781,000  rupees,  or,  in  round  numbers,  about  8(),400,000  taels. 
From  salt  it  received  onlv  about  89  million  rupees,  say  44,500,000 
taels. 

It  would  seem  probable  that  by  a  proper  organization  of  the  serv- 
ice and  an  increase  in  the  tax,  the  Chinese  Government  might  realize 
from  opium  a  nnicli  larger  revenue  in  the  near  future  Avithout  any 
tendency  toward  increasing  the  quantity  of  opium  used.  The  Gov- 
ernment would  also  derive  a  very  great  advantage  in  securing  a  much 
greater  control  over  its  production  and  use,  which  Avould  enable  it 
more  easily  later  to  adopt  whatever  measures  might  seem  advisable. 
Probably  similar  provisions  might  be  made,  although  they  would  be 


138  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

of  less  importance,  Avith  regard  to  spirits,  wines,  tobacco,  and  similar 
luxuries. 

The  succeeding  note  offers  some  suggestions  regarding  an  opium 
farm  for  certain  cities. 

(3)  Land  tax. — Sir  Robert  Hart  has  suggested  an  increased  rev- 
enue from  the  land  tax,  the  provisions  of  which  are  familiar. 

(4)  Mines. — It  seems  to  be  the  general  opinion  throughout  the 
provinces,  j^articularly  among  business  men  and  those  who  have 
looked  somewhat  carefully  into  the  subject,  that  a  considerable 
increase  in  income  might  be  derived  from  the  development  of  those 
mines  of  China,  the  revenues  from  which  have  not  already  been  as- 
signed, and  that,  if  it  were  desired,  a  loan  might  be  made  on  this 
security. 

In  order  to  secure  such  an  increase  in  revenue  and  to  manage  it  to 
the  best  advantage,  it  is  necessary  that  the  Government  have  a  some- 
what accurate  and  detailed  knowledge  regarding  the  mineral  re- 
sources of  China.  This  could  probably  be  most  readily  secured  if 
the  Government,  through  the  board  of  commerce,  were  to  organize  a 
central  mining  bureau.  This  bureau  should  undertake  at  once  a 
careful  survey  or  prospecting  of  the  chief  mining  resources  of  the 
Empire  under  the  direction  of  exjDerts  who  would  have  the  full  con- 
fidence not  merely  of  the  Government  itself,  but  also  of  investors 
everywhere.  In  the  case  of  all  mines  which  seem  important  very 
careful  estimates  should  be  made  by  these  experts  of  the  probable 
income  which  might  be  received  from  each  mine  under  proper 
royalties.  When  this  estimate  was  in  hand  the  Government  could 
judge  reasonably  well  regarding  the  amount  of  money  which  could 
probably  be  borrowed  on  this  basis.  Of  course  no  investors,  either 
Chinese  or  foreign,  would  be  Avilling  to  make  a  loan  so  large  that  its 
interest  and  amortization  fund  would  exhaust  the  estimated  royalty. 
Capitalists  might  readily  be  found,  however,  who  would  be  willing 
to  make  a  loan  the  average  support  of  which  might  amount  to,  say,  a 
lialf  of  the  royalty.  This  would,  on  the  average,  give  an  ample 
security.  The  other  half  then,  in  case  it  were  actually  realized, 
would  go  into  the  general  treasury  of  the  Empire. 

Wh^n  the  mining  bureau  once  had  full  knowledge  of  the  mines 
at  its  disposal  it  woidd  be  in  a  position  to  grant  privileges  on  these 
mines  on  reasonable  terms  on  the  basis  of  the  experts'  reports.  In- 
vestors would,  of  course,  send  their  own  experts,  at  first  at  any  rate, 
to  investigate  the  mines  which  they  were  proposing  to  develop  or 
on  which  it  was  their  intention  to  make  a  loan;  but  if  the  Chinese 
had  employed  experts  of  equal  skill  every  such  investigation  would 
serA'e  not  oid}'  to  confirm  the  judgment  of  the  Government  experts 
but  likewise  to  add  to  the  credit  of  the  Government  itself.  When  the 
permit  for  the  working  of  the  mines  was  given,  until  a  sufficient 
sum  had  been  secured  for  the  monetary  system,  it  might  well  be 
Miade  on  the  basis  of  a  loan  of  reasonable  size.  It  is  the  opinion 
of  a  good  many  experts  who  have  thought  out  the  matter  somewhat 
fully  that  from  the  mineral  resources  of  the  country  there  might  be 
realized  in  this  way  a  considerable  sum  within  a  comparatively  short 
])eriod — enough  probably  to  supply  the  needs  of  the  monetary  system. 
•  (5)  Railroads. — It  is  pi-obable  that  there  are  also  some  railroad 
concessions  which  might  be  used  in  the  same  way  under  the  direction 
of  the  board  of  commerce. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.        139 

(C)  Other  .sources. — Probably  the  board  of  revenuo  can  suggest 
other  sources  of  revenue;  for  example,  a  house  tax,  such  as  has  been 
employed  in  Canton;  a  business  tax,  such  as  is  conunon  throughout 
Europe  and  in  the  I'hilipjunes;  or  others.  Of  course,  any  su(;h 
taxes  should  be  levied  with  discretion  and  with  care  not  to  interfere 
with  business.  There  can  l)e  little  doubt,  however,  not  merely  that 
it  would  be  extremely  profitable  to  the  Chinese  (jovernment,  but 
also  very  beneficial  to  tlie  Chinese  people,  to  make  the  sacrifice  of 
slightly  additional  taxes  or  of  the  use  of  some  of  the  new  sources  of 
revenue  suggested,  amounting,  say,  to  from  two  to  five  million  taels 
a  year,  in  order  to  establish  a  new  monetary  system,  which  would 
probably  bring  an  annual  profit  for  a  good  many  j'^ears  of  from 
six  million  taels  a  year  upward,  besides  the  still  greater  indirect 
benefits  already  mentioned. 

G.  MEANS  OF   MAINTAINING  THE   RESERVE. 

Most  of  the  means  of  maintaining  the  reserve  at  a  sufficient  amount 
after  it  has  once  been  established  have  already  been  indicated  in  con- 
nection with  the  maintenance  of  the  gold  value  of  the  silver  and  cop- 
per coins,  so  that  this  subject  may  be  treated  quite  summarily.  The 
following  methods  may  be  noted : 

(o)   Gold  Paid  In. 

In  case  individuals  wished  to  have  silver  and  copper  coins  issued 
to  them  individually,  in  addition  to  those  wdiich  the  (xovernment  has 
put  into  circulation  by  the  ordinary  channels,  the  Government  should 
coin  and  issue  such  silver  and  copper  coins  on  demand  in  reasonable 
quantities  for  gold  deposited.  Such  gold  should  be  placed  in  the 
reserve  fund. 

This  has  been  the  chief  source,  practically  the  only  source,  of  rais- 
ing the  gold  reserve  in  India.  It  could  doubtless  be  made  eventually 
to  become  a  considerable  source  of  gold  revenue  for  China.  It  is  not 
well  to  depend  upon  it  too  much,  as,  in  order  to  have  it  work  most 
efficiently,  it  would  be  necessary  so  to  limit  the  quantity  of  coins  that 
business  might  be  considerably  hami:)ered.  Moreover,  it  should  be 
kept  in  mind  that  full  confidence  in  the  administration  and  high 
credit  is  needed  to  make  this  source  effective. 

ih)   Sale  of  Silver  Bills  on  China. 

In  connection  with  the  above  is  the  sale  of  bills  of  exchange  for 
gold  by  the  Chinese  agencies  abroad,  these  bills  of  exchange  to  be 
drfJAvn  on  the  treasury  in  China  or  on  the  national  bank  acting  as 
the  agent  of  the  treasury,  and  to  be  payable  in  China  in  the  new 
silver  coins.  It  is  not  necessary  that  the  rates  charged  by  the  agents 
of  China  abroad  for  bills  of  exchange  payable  in  the  new  coins  in 
China  be  the  same  as  those  charged  by  the  Chinese  Government  for 
bills  of  exchange  payable  abroad  in  gold  from  the  gold  reserve.  In 
fact,  if  it  seemed  that  there  were  danger  of  the  exhaustion  of  the 
gold  reserve,  the  Government  might  make  the  rates  favorable  enough, 
so  that  it  would  become  an  active  competitor  of  the  foreign  banks  in 
selling  these  bills  of  exchange.     Of  course  the  persons  in  charge  of 


140  GOLD    STANDARD    IN    INTERNATIONAL   TRADE. 

the  system  would  need  to  exercise  very  careful  discretion  in  deter- 
mining what  those  rates  may  be,  in  order,  on  the  one  hand,  to  main- 
tain the  system  in  its  integrity,  and,  on  the  other,  not  to  interfere 
unduly  with  private  business. 

(c)   Buy  Gold  Exchange. 

In  case  of  very  heavy  drafts  on  the  gold  fund,  so  that  there  seemed 
danger  of  its  exhaustion,  the  Chinese  Government,  either  through 
the  national  bank  or  through  other  special  agencies,  following  the 
example  which  Japan  set  in  more  than  one  instance,  might  enter  the 
market  and  buy  in  competition  with  others  in  Shanghai,  Tientsin, 
and  elsewhere,  for  silver,  foreign  bills  of  exchange  payable  in  gold  in 
London,  New  York,  Yokohama,  or  elsewhere;  the  products  of  these 
bills  of  exchange  Avhen  collected  in  gold  to  be  placed  in  the  gold 
reserve.. 

(cl)  Profits  on  Exchange. 

From  the  sale  of  bills  of  exchange  on  the  gold  reserve  held  abroad, 
as  well  as  from  the  sale  of  bills  of  exchange  on  the  Chinese  treasury 
jjayable  in  the  new  silver  coins  of  the  country,  small  profits  would,  of 
course,  be  realized.  These  would  naturally  be  placed  in  the  gold  re- 
serve. While  they  would  in  all  probability  amount  to  a  consider- 
able sum  each  year,  they  would  naturally  form  but  a  small  part  of 
the  gold  reserve  as  a  whole.  They  are  therefore  to  be  looked  upon 
as  a  subordinate  means  of  maintaining  the  gold  reserve. 

(e)   Sale  of  Silver  on  Hand. 

Another  resource  is  also  left  in  case  of  an  emergency,  a  means 
which  was  advocated  by  Mr.  Lindsay,  of  the  Bank  of  Bengal,  when  it 
was  proposed  to  establish  earlier  a  gold  reserve  for  India. 

In  case  very  large  quantities  of  the  new  silver  coins  are  paid  into 
the  Government  treasury  in  exchange  for  bills  of  exchange  on  the 
gold  reserve,  these  coins  are  to  be  held  in  the  treasury  until  there 
comes  a  strong  demand  on  the  part  of  business  men  for  them  to  be 
paid  out,  a  demand  which  would  be  manifested  ordinarily  by  the  de- 
])osit  of  gold,  either  at  home  or  abroad,  for  this  purpose.  It  is  evi- 
dent that  such  deposits  of  gold  would  not  be  made  as  long  as  gold 
exchange  is  demanded.  The  Government  would  therefore  have  in 
its  vaults  large  quantities  of  silver  coins.  If  the  gold  were  not  forth- 
coming elsewhere,  it  could  either  borroAv  temporarily  on  the  security 
of  these  coins  or  could  finally  sell  them  on  the  market  as  bullion, 
either  for  local  use  or  for  shipment  abroad.  Such  a  sale  would  in- 
volve a  loss  to  the  Government  of  the  cost  of  coinage,  and  possibly 
also  some  shipment  charges.  Beyond  that,  however,  there  would  be 
no  loss  sufl'ered,  i)r()vided  the  price  of  bullion  remained  the  same, 
inasmuch  as  the  Government  would  itself  have  bought  the  bullion 
oi-iginally  for  coining  these  pieces  at  market  bullion  i-ates.  There 
would  be  a  loss  of  coinage  and  rccoinage,  but  this  would  be  a  very 
small  per  cent,  possibly  2,  or  even  4  per  cent,  with  freight  charges, 
and  might  well  be  suffered  rather  than  to  take  any  serious  risk  of 
the  exhaustion  of  the  gold  reserve  and  the  depreciation  of  the  coins 
already  in  circulation. 


GOLD  STANDARD  IN  INTEKNATIUNAL  TRADE.       141 

Note. — .1//  ophau  fa  fin  for  some  of  the  cities  of  China. 

In  the  article  on  a  gold  reserve,  under  (r)  (2),  it  is  suggested  that 
the  Chinese  Government  does  not  receive  so  large  an  income  from 
opium,  spirits,  etc.,  as  is  usual  in  other  countries  or  as  is  desirable.  In 
order  to  secure  a  sufficient  basis  for  a  loan  of  the  new  monetary  system 
and  in  order  to  get  this  return  within  a  year,  which  would  be  soon 
enough  for  the  inauguration  of  that  system,  it  has  been  suggested  that 
the  selling  of  oi)ium  in  the  lai-ger  cities  like  Canton,  Shanghai,  Han- 
kow, Foochow,  etc.,  might  be  made  into  an  opium  farm;  that  is,  that 
the  monopoly  of  this  sale,  incliuling  the  selling  through  the  opium 
shops  where  opium  is  consumed,  be  made  a  monopoly  and  be  sold  to 
an  individual  or  syndicate  avIio  would  pay  the  largest  amount  for  it, 
and  would  conduct  it  in  accordance  with  the  law. 

The  (xovernment  Avould  then  lay  down  whatever  regulations  it  saw 
fit  for  its  introduction  into  the  city,  and  its  sale,  fixing,  if  it  thought 
best,  the  quality,  prices,  restrictions  regarding  persons  to  whom  it 
should  be  sold,  the  number  of  shops  where  it  should  be  sold,  with 
their  location,  and  any  other  regulations  that  seemed  desirable.  The 
money  for  the  farm  should  be  paid  quarterly  in  advance,  so  that  the 
Government  could  count  absolutely  upon  the  amount  of  revenue  and 
upon  the  date  when  it  would  be  received. 

This  system  should  be  applied  to  enough  cities  to  furnish  the  reve- 
nue required  for  the  loan.  This  law  would,  form  a  good  basis  for  the 
proper  taxing  of  opium,  and  might  later  be  extended  to  include  a 
general  opimn  monopoly  by  the  state,  or  it  might  take  whatever  other 
form  seemed  advisable.  It  was  suggested  that  a  commission  of 
three  men,  to  consist  of  two  Chinese  and  one  foreigner,  the  foreigner 
presumably  a  man  from  the  imperial  customs  wdio  knew  something 
regarding  the  conditions  of  opium  importation,  etc.,  and  who  could 
speak  Chinese,  should  be  sent  at  once  to  Singapore,  the  Federated 
Malay  States,  ])ossibly  to  Java,  Sumatra,  Manila,  and  Formosa,  to 
see  how  the  farms  are  run  in  those  ditferent  places,  where  they  have 
them.  They  should  then  go  to  Canton  and  these  other  Chinese 
cities,  and  after  informing  themselves  about  conditions  tliere,  have 
charge  of  the  selling  of  the  opium  farm.  The  farm  should  presuma- 
bly be  sold  for  a  year  at  a  time,  with  the  expectation  that  if  the 
farmer  did  his  work  well  he  should  have  a  certain  priorit}'^  in  the 
succeeding  year. 

An  opium  farm  of  this  type  would  presumably  bring  in  a  certain 
revenue  more  promptly  than  almost  any  other  tax  that  could  be 
devised.  As  soon  as  the  farm  was  sold  it  would  make  an  absolute 
basis  for  a  loan,  so  good  that  a  loan  could  doubtless  be  floated  at  a 
low  rate. 

The  chief  advantages  of  the  system  are  (1)  the  ])rompt  and  cer- 
tain income;  (2)  the  ease  of  enforcing  the  law,  inasmuch  as  the 
opium  farmer,  in  order  to  keep  his  monopoly,  would  himself  see  to 
the  enforcement  of  the  law  against  all  other  persons  besides  himself. 
He  himself  has  so  nmch  money  invested  that  it  would  not  pay  him  to 
take  the  risks  of  violating  the  hnv  under  penalty  of  forfeiture  of  his 
farm;  (?>)  the  ease  of  changing  the  system  for  another  at  almost 
any  time  whenever  the  change  might  seem  desirable. 


142       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

Of  course  the  dangers  of  a  farming  system  like  this  are  not  over- 
looked. There  is  danger  of  evasion  of  the  law,  of  a  poor  quality 
of  opium,  etc.  In  many  respects  a  Government  monopoly  is  pref- 
erable. On  the  other  hand,  considering  present  conditions  in  China — 
the  difficulty  of  handling  honestly  Government  monopoly,  the  need 
of  immediate  and  certain  returns,  etc. — it  is  probable  that  the  opium 
farm  would  secure  the  needed  revenue  more  certainly  and  promptly 
than  the  other  forms  of  tax  suggested. 

VIII.    COST   OF    ESTABLISHING    THE    NEW    MONETARY    SYSTEM- 
ESTIMATES. 

It  is  assumed  in  suggesting  these  figures,  in  order  to  make  the 
estimates  at  the  highest  possible  cost,  that  the  population  of  China  is, 
in  round  numbers,  iOO  million ;  that  the  new  monetary  standard  coin 
shall  be  a  dollar  about  equal  to  the  present  Peiyang  or  Canton  dollar 
in  size  and  weight,  and  that  it  is  given  a  gold  value  slightly  above 
that  of  the  Japanese  yen,  enough  to  insure  the  requisite  profit.  It  is 
within  the  power  of  the  Government  to  fix  the  rate  of  profit  at  the 
beginning. 

There  are  two  bases  of  estimates,  the  first  assuming  that  China  will 
need  eventually,  when  the  system  is  completed,  four  of  these  new  dol- 
lars per  capita.  This  is  an  outside  estimate,  larger  than  is  usually 
given,  and  larger  probably  than  is  needed.  The  second  assumes  a 
circulation  of  two  of  the  new  dollars  per  capita,  is  the  one  more 
generally  given,  and  is  the  one  recommended.  It  is  ample  for  start- 
ing the  system,  though  the  rate  of  coinage  might  be  increased  if  the 
coins  went  into  circidation  readily. 

FIRST  ESTIMATE— $4  PER  CAPITA. 

The  circulation  for  the  entire  Empire  when  the  system  is  completed 
will  be  1,600  million  dollars. 

In  the  four  chief  provinces  of  China  which  are  especially  con- 
nected with  foreign  trade — Chili,  Kiang-sii,  Hupeh,  and  Kwang 
Tung — and  which  contain  all  of  the  leading  commercial  cities — Tien- 
tsin, Shangliai,  Nanking,  Hankow,  and  Canton — there  is  a  popula- 
tion, in  round  numbers,  of  presumably  some  100  million. 

If  the  new  monetary  system  is  once  well  established  in  these  prov- 
inces and  the  fixed  value  of  the  coins  maintained  in  terms  of  gold, 
there  will  be  no  difficulty  whatever  in  extending  it  on  that  basis 
through  the  rest  of  China.  In  consequence  the  estimates  here  given 
are  on  the  basis  of  supplying  these  four  provinces  completely  with 
the  new  coins.  In  actual  practice  it  is  probable  that  a  good  many  of 
the  moi'e  remote  districts  of  these  provinces  might  not  be  well  sup- 
jdied  at  that  time,  while  some  of  the  cities  of  the  other  provinces, 
such  as  Shantung  and  Fukien,  would  be  supplied,  but  the  (juantity 
mentioned  would  be  aini)le  work  for  the  first  five  years.  The  figures 
given  are  high  enough  in  every  case  so  that  they  are  believed  to  be 
entirely  safe.  The  following  table,  in  millions  of  dollars,  gives  for 
ea(;h  of  the  first  five  years  the  amount  to  be  coined,  the  profit  on  the 
coinag(>  at  20  per  cent,  the  amount  in  circulation,  the  percentage  of 
the  circulation  to  be  held  as  a  gold  reserve,  the  amount  of  that  re- 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.        143 

serve,  and  the  ammint  to  be  supplied  to  the  gold-reserve  fund,  by  loan 
or  otherwise,  outside  of  the  coinage  profit : 

Taiu.k  III. 


Year. 

Amount 
coined. 

Coinage 
profit. 

Amount 
in  circu- 
lation. 

Circula- 
tion in 
reserve 
fund. 

Reserve. 

Amount 
to  be  sup- 
plied 
from 
loan  or 
tax. 

First                 - 

$80 
80 
80 
80 
80 

$16 
16 
16 
16 
16 

$80 
160 
240 
330 
400 

Per  cent. 
75 
50 

42H 
37t=>s 

$60 
80 
103 
119 

ia5 

$44 

4 

Third     

Fourth                 - 

Fifth         

Total 

400 

80 

400 

135 

55 

It  will  be  noted  that  the  larger  part  of  the  loan  or  special  tax  is 
called  for  during  the  first  year.  There  are  two  reasons  for  this.  In 
the  first  place,  the  special  runs  on  the  new  system  are  likely  to  occur 
during  the  first  year  rather  than  later.  On  that  account  it  might  be 
thought  advisable,  for  a  time  at  least,  to  be  ready  to  supply  gold  if 
necessary  to  a  certain  extent  in  exchange  for  the  new  silver  coins 
within  the  country  itself  at  a  charge  equivalent  to  the  cost  of  ship- 
ment of  gold  from  P^urope.  This  should  not  I)e  adopted  as  a  general 
policy,  and  it  is  questionable  whether  it  should  be  done  at  all,  but 
]5roA'ision  for  a  veiy  large  reserve  to  guard  against  possible  runs 
should  be  made. 

In  the  second  place,  while  the  bulk  of  the  circulation  is  still  in 
other  coins  or  in  bullion,  especially  before  their  importation  is 
stopped,  it  is  possible  that  in  order  to  test  the  system  a  very  large 
percentage  of  the  new  coins  would  be  presented  to  Ijuy  gold  exchange 
Avith,  even  at  the  rather  high  rates  charged  for  l)ills  of  exchange. 
After  the  system  is  finally  established,  the  withdrawal  of  the  coins 
from  circulation  on  their  presentation  to  buy  bills  would  so  contract 
the  currency  that  the  rates  charged  for  bills  of  exchange  would  cer- 
tainly fall,  i.  e.,  a  fixed  amount  in  sterling — say,  £1,000 — -would  cost 
less  in  the  new  dollars,  or  a  fixed  amount  of  the  new  dollars  W'Ould 
buy  a  larger  sterling  draft  as  the  dollars  became  scarcer.  But  while 
there  remained  a  large  circulation  of  other  coins,  and  particularly 
while  importation  of  other  coins  might  continue,  it  is  possible  that 
this  might  not  bo  the  case;  hence  the  necessity  during  the  first  j'ear 
or  two  of  a  very  large  reserve  which  could  l)c  used  if  necessary.  It 
is  aV)solutely  essential  to  the  success  of  the  system  that  sufficient  pro- 
vision be  made  so  that  the  absolute  confidence  of  the  business  world, 
both  Chinese  and  foreign,  be  assured  beyond  question. 

SECOXI)  ESTIMATE— .$2  PER  CAPITA. 

This  estimate  is  much  more  reasonable  on  the  whole  and  is  ample 
for  a  safe  starting  of  the  system,  though  if  experience  shows  that 
the  coins  are  readily  used  and  the  system  rapidly  wins  success,  provi- 
sion should  be  made  to  increase  the  rate  of  coinage  and  the  amount 


144 


GOLD    STANDARD    IN    INTERNATIONAL   TRADE. 


coined.     The  following  table  in  millions  of  dollars  shows  the  figures 
for  each  of  the  first  five  years  and  the  totals : 


Table  IV. 


Year. 

Amount 
coined. 

Coinage 
profit. 

Amount 
in  circu- 
lation. 

Circula- 
tion in 
reserve 
fund. 

Reserve. 

Amount 
to  be 

supplied 
from 
loan. 

First.  ..     . 

|40 
40 
40 
40 
40 

200 

$8 
8 
8 
8 
8 

$40 
80 
120 
160 
200 

Per  cent. 
75 
50 

m 

36J 

m 

$30 
40 
51 
59 
67 

$22 

Second  

2 

Third 

3 

Pourth    -             .  -                       - . .    . 

Fifth 

Total 

40 

200  i 

67                 27 

In  either  case  it  would  be  desirable  to  make  contracts  in  the  cities 
where  the  gold  reserve  is  kept  for  making  further  temporary  drafts 
in  case  of  an  emergency — that  is,  an  option  to  draw  to  an  amount 
named  would  be  bought.  As  long  as  it  is  likely  that  this  privilege 
Avould  not  be  needed,  it  is  probable  that  the  charge  for  the  mere 
privilege  would  be  slight.  In  case  use  should  be  made  of  it  the 
Government  would,  of  course,  pay  the  usual  rate  of  interest  foi-  the 
length  of  time  it  kept  the  money,  say  from  one  to  four  months.  It 
Avoiild  be  easily  possible,  doubtless,  to  give  to  an  institution  from 
which  this  option  of  drawing  was  obtained  a  warning  of  a  day  or  two 
at  least.     Pi'obably  a  warning  of  CA^en  a  month  could  be  given. 

In  addition  to  the  monetary  cii"culation  itself,  it  is  necessary  that 
there  be  some  Avorking  capital.  It  is  probable  that  from  the  present 
sources  of  income  of  the  Chinese  Oovermnent  something  could  be 
furnished;  but  in  order  that  the  entire  expenses  may  be  estimated, 
it  is  thought  best  to  add  a  sum  for  working  capital.  Under  the  first 
estimate,  in  order  that  the  ])rinciple  of  giving  the  highest  charges  to 
everything  be  maintained,  this  sum  may  be  placed  at,  say,  $25,000,000. 
This  would  be  sufficient  to  provide  a  liberal  amount  of  bullion  for  the 
mints,  to  incur  some  expense  in  organizing  the  mints  ancAv  if  neces- 
sary, and  to  make  some  provision  for  the  initial  establishment  of 
exchanges  and  agencies  for  the  introduction  of  the  new  system.  It  is 
possible  that  this  sum  Avould  also  pay  the  provinces,  in  i)art  at  least, 
for  the  mints  taken  over.  This  Avould  make,  then,  to  be  raised  from 
outside  sources,  i.  e.,  from  a  loan  or  special  tax,  $80,000,000. 

Under  the  second  estimate  Ave  may  place  the  figure  for  expenses  at, 
say,  $1^,000,000.  Doubtless  a  smaller  sum  Avould  serA^e  to  run  the 
mints,  but  not  to  the  best  advantage,  provided  many  other  expenses 
arise,  inasmuch  as  it  is  desirable  ahvays  to  be  sure  of  keeping  an 
ami)le  supply  of  material  on  hand.  The  payment  for  i:)resent  mints 
is  not  included.  This  Avould  make  a  total  from  outside  sources,  a  loan 
or  tax,  uuder  this  estimate,  of  $40,()()0,0()0. 

Inasmuch  as  the  present  accounts  of  the  Chinese  Government  are 
kept  in  K'up'ing  taels,  it  might  be  c(mvenient  for  purposes  of  compu- 
tation if  these  sums  Avere  i)ut  into  taels.  It  is  assumed  that  the  ucav 
dollar  Avill  be  slightly  more  valuable  than  the  Japanese  yen.  The 
K'up'ing  tael  is  someAvhat  heavier  than  the  Shanghai  tael.    According 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.        145 

to  late  quotations,  oxchaiio^o  on  Yokoliama  was  80  Shan^jhai  taol  cents 
per  yen.  We  may  i)erhai)s  safely  assume  for  the  present  purjiose  that 
the  added  value  of  the  K'up'ina-  tael  as  e()mi)are(l  with  the  Shanghai 
tael  corresponds  to  the  added  value  of  the  new  dollar  as  compared 
with  the  yen,  and  reckon  the  new  dollar  as  worth  0.80  of  a  K'up'ing 
tael.  In  that  case  the  amounts  to  be  raised  would  be,  on  the  different 
estimates,  respectively,  G-f  million  taels  and  32  million  taels. 

If  an  estimate  of  7  per  cent  interest  is  assumed  in  order  to  get  the 
annual  charge,  Ave  shall  surely  be  taking  an  outside  limit.  It  is 
probable  that  the  loan  could  be  made  at  considerably  less  than  that. 
At  the  rate  of  7  per  cent,  under  the  first  estimate,  the  annual  charge 
would  be  4,480.000  taels;  under  the  second  estimate,  2,240.000  taels. 
If  we  ma}'  judge  from  the  practically  universal  experience  with  such 
funds,  however,  a  considerable  portion  of  the  gold  reserve  could  be 
kept  on  deposit  at  call  in  the  great  business  centers,  whether  in  Eu- 
rope, America,  or  China,  so  that  it  would  bear  interest.  It  is  clearly 
a  conservative  estimate  to  assume  that  a  half  of  the  Reserve  is  drawing 
2  per  cent  interest.  It  is  probable  that  it  would  be  considerably  more 
than  that. 

The  first  year  we  should  have  a  reserve  of  60  million  dollars;  the 
fifth  year,  135  million  dollars.  It  will  perhaps  be  fair  to  take  an 
average  of  these  sums  for  the  average  reserve  during  the  first  five 
years,  $97,500,000,  the  interest  at  2  per  cent  on  half  of  Avhich  amounts 
to  $975,000.  Reducing  this  to  taels  at  the  same  rate  we  get  3,700,000 
taels,  to  be  deducted  from  4,480,000  taels,  leaving  3,700,000  taels  as  the 
net  expenditure.  In  the  second  table,  reckoning  in  the  same  way,  the 
annual  net  revenue  at  2  per  cent  for  the  first  five  years  would  be 
388.000  taels,  to  be  deducted  from  2,240,000  taels,  leaving  an  average 
annual  expenditure  of  1,852,000  taels. 

If  to  these  sums,  respectively,  be  added,  say,  1  per  cent  of  the  aver- 
age reserve  for  the  privilege  of  drawing  an  added  amount  e(mal  to  the 
reserve  for  any  few  days  at  a  time  when  that  might  be  needed, 
although  in  all  probability  it  never  would  be  needed,  this  will  restore 
the  annual  charge  to  the  figures  given  originally;  that  is,  4,480,000 
taels  and  2.240,000  taels. 

When  one  considers  the  enormous  l)enefits  to  China,  as  they  have 
been  stated  before,  which  would  accrue  from  these  expenditures,  the 
latter  seem  very  slight  indeed.  These  estimated  charges  themselves 
per  annum  would  probably,  in  actual  practice,  suffice  to  pay  off  the 
debt  incurred  by  the  time  the  monetary  system  was  made  complete, 
provided  the  rate  of  coinage,  the  profits  of  coinage,  and  the  amount 
to  be  coined  remained  as  indicated  in  the  estimates,  and  estimating 
that  it  will  require  twenty  years  for  the  complete  establishment  of  the 
system.  The  following  considerations  indicate  that  result :  The  gold 
reserve  could  be  made  proportionally  less  before  that  time;  the  in- 
terest on  current  balances  would  increase  decidedly;  the  reserve  has 
been  reckoned  against  the  entire  circulation,  whereas  it  would  not 
need  to  l)e  kept  for  redemption  of  copper  coins,  etc.  It  is  best,  how- 
ever, to  make  provisions  against  all  possible  risks,  so  that  the  above 
outside  figures  are  given.  It  would  be  desirable  to  introduce  the  sys- 
tem more  ra])idly  than  indicated  here.  In  that  event  the  cost  to  the 
country  would  be  less,  since  the  benefits  to  the  country  would  be  cor- 
S.  Dot-.  128,  58-3 10 


146  riOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

respoiidiiigly  greater,  inasmuch  as  the  benefits  woukl  take  effect 
sooner. 

If  for  an  expenditure  of  4,480,000  taels  a  year  a  cash  income  of 
12,800,000  taels  can  be. secured,  and  for  an  expenditure  of  2,240,000 
taels  one  of  (J,400,000  can  be  secured,  aside  from  all  the  other  vastly 
greater  benefits  of  established  credit,  of  increased  trade,  of  increased 
revenues,  etc.,  it  would  seem  that  the  most  strenuous  efforts  ought  to 
be  made  to  secure  the  sum  needed  from  year  to  year  in  order  to  keep 
up  these  benefits. 

It  must  not  be  forgotten  that  if  the  system,  instead  of  being  estab- 
lished with  the  coins  on  a  fixed  parity  with  gold,  is  placed  on  the 
silver  parity,  the  2:)rofits  of  coinage  will  be  reduced  b}^  three-fourths, 
at  any  rate,  whereas  the  cost  of  minting  and  other  incidental  expenses 
of  introducing  the  system  would  not  be  reduced  at  all.  Moreover, 
there  would  be  lost  a  very  large  proportion  of  the  advantages  that 
would  come  from  an  established  credit,  an  increased  investment  of 
capital,  etc.  Beginning  on  a  silver  basis  and  afterAvards  transferring 
to  gold  would  lose  absolutely  at  least  three-fourths  of  the  profits  on 
all  the  coinage  issued  before  the  sj^stem  was  established  and  would, 
beyond  nnich  of  any  question,  postpone  the  completion  of  the  sys- 
tem to  a  period  at  least  double  that  which  will  be  required  if  the 
system  is  started  on  the  gold  basis.  It  becomes  a  matter  of  the 
gravest  importance,  therefore,  that  the  whole  plan  be  thoroughly 
thought  out  before  any  positive  action  is  taken. 

If  it  is  rightly  managed,  the  system  not  merely  costs  nothing  in 
the  long  run;  it  is  a  source  of  large  actual  cash  profits  from  the  first 
year.  It  is  a  very  profitable  financial  investment.  If  the  sovereign 
power  of  the  State  which  epables  it  to  make  these  profits  could  be 
loaned  to  a  private  company,  such  a  comj^any  would  willingly  pay 
the  Chinese  Government  several  millions  of  taels  a  year  for  the 
privilege  of  starting  and  running  the  system  without  any  expense  to 
the  Chinese  (xovernment.  It  Avould,  of  course,  be  inadvisable  to  give 
such  power  to  a  private  company ;  but  the  fact  shows  the  opportunity 
which  is  presented  to  the  Chinese  Government  by  the  present  condi- 
tions. All  other  civilized  countries  on  the  gold  basis  are  using  this 
source  of  profit  to  advantage ;  but  as  the  chief  j^rofits  come  from  the 
new  coinage  they  make  much  less  than  China  can  make,  which  has  to 
coin  ancAv  its  entire  circulation. 

If  the  Chinese  Government  finds  it  difficult  for  two  or  three  years 
to  secure  additional  revenue  to  pay  the  interest  on  the  loan,  it  will 
probably  be  practicable  to  iray  the  interest  for  three  years  at  least  out 
of  the  seigniorage,  so  that  the  Chinese  Government  would  thus  estab- 
lish its  monetary  system  on  a  gold  basis  without  any  expense  to  its 
revenues  for  the  first  three  years,  provided  the  price  of  silver 
remained  substantially  the  same.  It  is  probable,  of  course,  that  this 
period  might  be  extended  a  year  or  two;  it  is  possible  that  it  might 
l>e  shortened  a  little.  From  careful  discussion  of  the  subject,  how- 
ever, with  l)usiness  men  accustomed  to  floating  foreign  loans  and 
dealing  with  financial  matters  of  that  t^'pe  it  is  practically  certain 
that  a  loan  could  be  made  on  the  security  of  the  gold  reserve,  with  the 
interest  to  be  paid  for  three  years  at  least  out  of  the  profits  of  the 
coinage.  This  would  be  sufficient  time  for  the  Government  to  start 
almost  any  new  system  of  revenue  which  was  necessary  in  order  to 
meet  expenses  thereafter. 


OULI)    STANI)AK[>    IN    INTKRN ATIONAL    TRADE.  l-lT 

IX.  ADMINISTRATIVE  ORGANIZATION. 
1.  CONDITIONS  OF  SUCCESS. 
(a)  The  Confidknce  of  the  People — Chinese  and  Foreign. 

(1)  Tli.it  they  may  readily  tak(>  the  iieAv  coins  at  their  face  vahic. 

(2)  That  they  may  siil)scrihe  money  for  a  loan  or  the  establishment 
of  a  national  bank. 

(3)  That  the  banks,  especially  the  native  banks,  may  accept  the 
coins  in  connection  with  foreign  exchange  and  the  gold  reserve. 

(b)   Sufficient  Capital. 

(c)   Skill  in  Management  of  the  System. 

These  three  are  all  needed  for  the  success  of  the  system,  whether  the 
coins  be  given  a  fixed  value  in  gold  or  not.  though  especially  needed 
in  the  latter  case. 

2.  HOW  TO  SECURE  THESE  CONDITIONS. 

(o)   Means  of  Securing  Confidence. 

(1)  Puhlieity. — If  everybody  knows  well  Avhat  is  being  done  and 
how  the  system  is  managed  and  if  the  work  is  well  done,  confidence  is 
assured.  This  will  require  a  careful  system  of  accounting  and  the 
regular  publication  of  accounts,  as  is  the  case  in  most  of  the  advanced 
countries. 

(2)  Absolute  good  faith  and  wprightness  in  the  manage7nent,  and 
pifhlir  beh'ef  in  this  good  faith. — At  present  the  piil>lic  has  not  always 
sufficient  trust  in  the  good  faith  of  the  Government  to  give  it  its  full 
confidence.  The  management  must  be  such  as  to  secure  that  confi- 
dence. 

(3)  Management  in  the  public  intet'est,  and  pvblic  belief  in  that. — 
At  present  there  is  sometimes,  unfortunately,  a  belief  that  some  of  the 
business  of  the  Government  is  managed  in  the  interest  of  the  officials. 
The  new  system  must  be  managed  by  business  methods,  and  it  will  be 
easier  to  secure  public  confidence  if  it  is  managed,  as  far  as  is  practi- 
cable, through  the  banks  and  other  Inisiness  men. 

(4)  Skill  ar d  knoidedge  in  management  and  ntanagement  through 
such  agents  that  the  people  will  trust  their  skill. — It  is  not  sufficient 
that  the  men  have  sufficient  knowledge  unless  the}'  are  those  whom  the 
public,  on  account  of  their  general  reputation  and  of  their  connec- 
tions, will  trust. 

( b )   Capital. 

In  order  to  secure  capital  the  public  confidence  must  first  be  se- 
cured, and  the  plans  adopted  must  meet  the  approval  of  the  leading 
capitalists.  After  that  the  methods  of  raising  capital  by  loans  or 
subscriptions  have  already  been  sufficiently  discussed  under  the  ques- 
tion of  a  gold  reserve. 


148  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

(c)   Skill  in  Management  of  the  System. 

Men  for  the  different  positions  of  responsibility  must  be  chosen 
who  from  their  training  and  experience  will  be  known  to  have  the 
requisite  skill.  It  will  not  be  sntRcient  to  select  merely  men  of  prom- 
ise. The  men  in  the  most  important  positions  must  have  been  already 
tested. 

3.  THE  OFFICIALS  NEEDED. 

(a)  The  Monetary  Commission  or  Board  of  Revenue. 

Either  the  monetary  commission  or  the  board  of  revenue  will  pre- 
sumably have  the  general  supervision  of  the  system  as  a  whole,  and 
the  official^  appointed  will  be  subordinate  to  them. 

Presumably  it  would  be  well  for  some  one  person  in  this  commis- 
sion to  be  designated  as  an  active  official  to  give  his  full  time  to  the 
work  and  to  represent  the  commission  as  a  whole. 

(b)  An  Expert  (Controller)   in  General  Charge  of  the  System. 

He  should  be  held  responsible  for  the  general  management  of  the 
system  as  a  whole  under  the  commission,  and,  generally  speaking,  of 
course,  his  reconnnendations  should  be  followed.  He  should  take  no 
important  step  without  the  full  knowledge  of  the  special  manager  of 
the  monetary  commission,  already  mentioned,  and  matters  of  chief 
importance  should  receive  the  sanction  of  the  full  board. 

He  should  be  ex  officio  a  director  of  the  national  bank,  and  should 
have  immediate  direction  of  the  gold  reserve,  acting  through  the 
bank,  where  practicable,  and  also  under  the  oversight  of  the  commis- 
sion. He  ought  not  to  have  any  control  over  the  revenues  except  in 
the  monetary  system. 

Presumably  he  should  live  at  Peking.  He  should  nominate  to  the 
board  for  appointment  the  other  chief  monetary  officials. 

(c)   Deputy  Controller. 

Inasmuch  as  Shanghai  is  the  most  important  business  place  in 
China,  and  inasmuch  as  questions  of  exchange,  as  well  as  other  im- 
portant matters  in  connection  with  the  system  might  presumably  come 
up  there  first,  it  would  be  advisable  that,  when  the  system  is  started 
at  Shanghai,  there  be  a  deputy  conti'oller  resident  there  who  would 
have  the  confidence  of  the  commission,  and  who,  agreeing  in  general 
policy  with  the  controller  and  the  board,  would  represent  the  con- 
troller in  Shanghai. 

(d)  General  Accountant. 

The  necessity  of  accurate  accounting  and  publicity  has  already 
been  mentioned.  This  can  not  be  secured  to  advantage  unless  the 
accounts  of  the  diffeivnt  miuts  and  of  the  different  branches  of  the 
work  be  kept  in  accordance  with  an  harmonious  system.  The  gen- 
eral accountant  should,  therefore,  deteruiine  the  methods  of  accoimt- 
ing  throughout  the  system;  should  receive  in  detail  from  the  mints 


GOLD    STANBAKD    IN    TNTKRNATIONAL    TTIADE,  149 

and  other  hrnnchos  of  the  work,  inclndino:  the  national  bank  so  far 
as  its  work  is  connochMl  with  the  nionetary  system,  tinit'orni  reports, 
and  should  be  hehl  res[)onsil)U'  for  the  reguhir  i)ubHcati()n  of 
accounts  so  far  as  matters  are  to  be  made  public.  He  should  collect 
statistics  for  the  commission,  be  the  agent  to  send  out  notices  of  rates 
of  exchange,  etc. 

(e)  General  SurERiNXENDENT  of  Mints. 

Besides  the  sub-superintendents  in  charge  of  each  one  of  the  mints 
that  is  running,  there  .shouhl  be  a  general  superintendent  in  charge 
of  them  all.  It  should  be  his  duty  to  see  to  the  buying  of  bullion,  to 
the  general  principles  on  which  the  mints  should  be  managed  so  as 
to  secure  absolute  accuracy  in  the  minting  of  the  coins,  as  regards 
the  touch  of  the  coins,  excellence  of  workmanship,  care  of  the  ma- 
terials, etc.  He  should  also  deliver  the  coins  to  the  national  bank, 
the  treasury,  or  other  agencies  of  the  monetary  commission,  in  accord- 
ance with  the  directions  received  from  the  monetary  commission 
through  the  controller. 

He  should  nominate  the  sub-superintendents  of  the  mints  to  the 
controller  for  appointment  by  the  monetary  commission  Pre- 
sumal)ly  the  present  local  managers  and  working  force  would  be 
retained  as  far  as  practicable. 

4.  THE  NATIONAL  BANK. 

The  national  bank,  while  doing  presumably  a  large  private  banking 
business  which  would  come  to  the  profit  of  the  stockholders,  would 
also  be  an  agent  of  the  (xovernment  in  connection  with  the  monetary 
system  and  with  other  Governmental  work.  As  its  profits  would  be 
in  part  dependent  upon  the  Government,  and  as  it  would  do  much 
Government  work,  it  should  divide  profits  with  the  Government 
and  the  Government  should  have  a  voice  in  the  management. 

(a)  Powers. 

Private. —  (1)  Discount  or  purchase  of  commercial  bills  of  exchange. 
(2)  Purchase  and  sale  of  gold  and  silver  bullion  and  bonds.  (3) 
Loaning  money  on  the  security  of  gold  and  silver  coins,  bonds,  govern- 
ment bills,  or  other  collateral.  (4)  Opening  and  conducting  deposit 
accounts,  including  safety  deposits. 

ParfJi/  private. —  (5)  Issuing  of  bank  notes  convertible  on  demand 
into  the  new  coins  under  Government  law  determining  the  new  coin- 
age. A  special  law  should  be  passed  determining  the  amount  and 
character  of  the  coin  reserve  for  the  bank  notes,  the  regulations 
regarding  their  redemption,  and  other  ordinary  provisions  of  a  law 
regulating  bank-note  issue ;  the  right  of  issuing  bank  notes  to  be  made 
a  monoply  of  the  bank  as  soon  as  })racticable. 

Puhlie. —  (G)  Act  as  the  chief  agent  of  the  Government  in  exchang- 
ing the  new  coins  and  notes  for  the  old  coins  and  moneys  now  in  cir- 
culation under  regulations  made  by  the  commission.  For  this  work, 
of  course,  it  would  establish  l)ran(;hes  and  numerous  agencies.  It 
would  advise  regarding  the  quantity  and  denominations  of  coins  to 
be  minted.     (7)  Act  as  agent  for  the  Government  in  the  administra- 


150  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

tioii  of  the  gold-reserve  fund  in  connection  with  the  controller  under 
regulations  made  by  the  monetary  commission.  The  gold  reserve  to 
be  held  as  government  pro})erty  on  deposit  with  the  bank  and  to  be 
administered  by  the  bank,  not  as  its  own  funds,  but  under  general 
regulations,  as  indicated.  Exchange  to  be  sold  against  this  gold 
reserve  only  under  the  general  regulations  and  with  the  cooperation 
of  the  controller,  the  bank  selling  its  own  exchange,  of  course,  freely, 
without  reference  to  the  monetary  commission.  (8)  Act  as  agent  of 
the  treasury  in  receiving  and  disbursing  government  moneys  under 
regulation  of  the  treasury,  presumably  receiving  in  its  different 
branches  Government  moneys  for  deposit;  acting  as  agent  for  the 
Government  in  paying  Government  salaries,  etc.  This  Avork  to  in- 
clude the  administration  of  the  debt  obligations  so  far  as  it  may  be 
made  practicable.  This  work  done  mider  the  board  of  revenue,  not 
the  monetary  commission,  except  regarding  its  own  funds. 

(h)   Organization, 

The  bank  should  be  organized  as  a  stock  company  for  twenty- 
five  or  thirty  years,  with  the  liability  of  stockholders  limited  to  the 
amount  of  their  capital  stock.  The  stockholders  presumably  private 
individuals.  The  capital  presumably  some  forty  or  fifty  million  dol- 
lars of  the  new  coins,  one-quarter  to  be  paid  in  before  the  bank  begins 
business. 

(c)  Officers. 

(1)  Five  to  seven  directors,  elected  by  the  shareholders.  The 
president  and  the  vice-president  to  be  chosen  from  among  them.  (2) 
One  manager,  Chinese,  and  one  manager,  foreign,  to  be  elected  by  the 
directors  with  the  approyal  of  the  Government,  and  to  be  given  full 
power  under  the  law  laid  down  by  the  Government.  (3)  One  au- 
ditor, to  be  appointed  by  the  Government;  one  or  two  auditors  to  be 
elected  by  the  shareholders.  (4)  Compradores,  managers  of  branch 
banks,  minor  officers  and  assistants,  to  be  appointed  by  the  board  of 
directors.  (5)  The  controller  of  the  currency,  who  is  a  Government 
official,  to  be  a  director  of  the  bank  ex  officio. 

Tlie  directors  to  be  chosen  for  a  period  of  five  years,  and  to  be  so 
classified  that  one  at  least  will  retire  each  year. 

The  private  business  of  the  bank  to  be  managed  solely  by  the  board 
of  directors  at  their  discretion.  The  public  business  to  be  managed 
by  them  under  regulations  laid  down  by  the  Government  and  under 
its  careful  inspection  through  the  controller  and  auditor,  and,  if  the 
Government  wishes,  also  through  an  inspector  to  be  appointed  by  the 
Government. 

(d)  Branches  and  Agencies. 

The  bank  to  establish  branches  in  the  leading  commercial  cities  and 
to  establish  agencies  throughout  the  country  as  rapidly  as  it  is  pos- 
sible to  extend  the  new  monetary  system,  or  wherever  tlie  bank  finds 
it  profitable  for  its  own  business. 

The  bank  also  in  due  time  to  establish  its  branches  and  agencies 
abroad.  It  may  possibly  be  advisable  at  least  for  a  time  to  make 
leading  foreign  banks  its  agents  in  connection  with  the  reserve  funds. 


GOLD    STANDARD    IN    INTKRNATIONAL    TRADE.  151 

(<')  The  Management. 

The  management  to  be,  in  the  main,  in  accordance  with  the  customs 
of  the  leadino-  foreign  national  banks,  Keports  of  the  exact  condi- 
tion of  the  bank  to  be  published  (puirterly;  reports  to  be  made  on 
demand  at  any  time  to  the  monetary  connnission.  So  far  as  the  Gov- 
ernment business  in  connection  with  the  monetary  system  is  concerned, 
the  books  to  be  kept  in  accordance  with  the  rules  laid  down  by  the 
monetary  connnission  on  advice  of  the  general  accountant,  and 
reports  to  be  furnished  him  when  asked  for.  Every  eli'ort  to  be  made 
to  secure  public  confidence  b}'^  engaging  well-known  competent  man- 
agers and  by  as  great  a  degree  of  publicity  of  management  as  is 
practicable. 

if)   Profits. 

From  the  profits,  dividends  to  the  amount  of  G  per  cent  to  be 
divided  among  the  stockholders.  If  there  is  a  surplus  beyond,  10 
per  cent  of  this  surplus  to  be  placed  in  a  reserve  fund  until  that  fund 
amounts  to  10  million  dollars.  Surplus  beyond  this  to  be  divided  into 
two  parts  between  the  stockholders  and  the  state  until  the  share  of  the 
stockholders  amounts  to  8  per  cent  of  the  capital.  The  remainder 
l)eyond  that  to  be  divided  into  three  parts,  one  to  the  stockholders  and 
two  to  the  state. 

X.  REVISION  OF  TREATIES. 

1.  REGARDING  THE  IMPORTATION  OF  FOREIGN  COINS  AND  OF 

BULLION. 

In  order  to  carry  out  successfully  its  monetary  reform,  it  seems 
probable  that  China  will  need  to  arrange  with  the  various  treaty 
powers  a  revision  of  the  conditions  regarding  the  impoilation  of  for- 
eign coins  and  of  bullion,  so  that  she  may  either  levy  a  duty  upon 
their  importation  or  forbid  their  importation  altogether  excepting 
under  Government  instruction. 

(«)   Reasons  for  Checking  Importation. 

The  reasons  for  the  checking  of  importation  are  as  follows: 
(1)  7'6»  secure  and  heef  one  nniform  system  of  coinage. — So  long- 
as  foreign  coins  are  admitted  free  of  duty,  it  is  likely  that  the  Mexi- 
can dollars,  and  especially  the  British  dollars,  will  circulate  freely  in 
many  parts  of  China,  particularly  in  the  coast  cities.  If  the  new 
coins  remain  on  the  silver  V)asis  and  are  substantially  of  the  same 
Aveight  as  these  other  coins,  there  is  no  reason  why  the  people  should 
make  any  special  discrimination  between  them,  and  it  is  not  likely 
that  they  will  take  the  trouble  to  do  so.  Indeed  the  rei)utation  of 
the  Mexican  dollar,  and  especially  that  of  the  British  dollar,  are  so 
Avell  established  that  for  a  long  time  to  come  many  would  take  them 
in  preference  to  the  new  dollar. 

If  the  new  coins  should  be  placed  on  the  gold  basis,  very  many  of 
the  Chinese  would  gradually  come  to  prefer  the  new  coins  as  more 
satisfactory  for  use,  especially  in  the  import  trade  and  in  all  othei- 
cases  where  a  fluctuation  in  exchange  with  foreign  countries  is  detri- 
mental. On  the  other  hand,  for  the  use  of  exporters  who  wish  to  buy 
material  in  the  interior  of  the  country,  for  those  who  liave  wages  to 


152       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

pay  to  the  more  ignorant  classes  among  the  people,  and  for  many 
others,  the  cheaper  coin  would  be  considered  more  advantageous,  and 
on  that  account  the  foreign  coins  would  hold  their  oaa^i  against  these 
new  coins  for  a  long  time  miless  special  discrimination  were  made 
against  them. 

Of  course  the  Government  might  discriminate  against  them  by 
refusing  to  receive  them  for  obligations  due  the  Government  and 
might  deprive  them  of  their  legal-tender  qualities,  but  even  this  dis- 
crimination would  not  prove  sufficient  to  expel  them  from  the  coun- 
try, and  resort  would  probably  be  had  ultimately,  if  that  were  pos- 
sible, to  discriminating  taxation  on  contracts,  as  explained  below. 

Without  stopping  importation,  therefore,  it  would  seem  practically 
impossible  to  carry  out  the  provisions  of  the  treaties  which  require 
the  establishment  of  a  uniform  coinage. 

(2)  To  keep  up  the  value  of  the  silver  coins  Jjy  making  them^  rela- 
tively speaMng^  scarce  as  compared  unth  the  demand  for  them. — 
One  important  influence  toward  maintaining  the  value  of  the  silver 
coins,  particularly  if  they  are  placed  on  the  gold  basis,  is  to  see  that 
the  quantity  of  money  in  circulation  is  limited  to  the  needs  of  busi- 
ness. If  the  Government  is  able  to  exclude  foreign  coins  and  bul- 
lion, it  will  be  able,  in  case  of  a  threatened  depreciation  of  its  new 
coins,  to  withdraw  some  of  them  from  circulation  by  receiving  them 
in  exchange  for  drafts  on  its  gold  reserve,  and  then  by  retaining 
them  in  the  treasury  to  create  a  relative  scarcity  of  the  money  in  cir- 
culation. If  there  is  no  checking  of  importation,  any  such  with- 
drawal of  coins  from  circulation  would  have  little  or  no  effect,  since 
their  place  would  be  filled  by  coins  from  Hongkong,  bj^  bullion,  etc. 
To  insure  the  maintenance  of  the  gold  parity  without  too  great  a 
strain  on  the  gold  reserve,  a  checking  of  importation  is  necessary. 

(h)  When  Regulate  Importation. 

The  regulation  of  importation  of  these  coins  and  of  bullion  should 
be  placed  in  the  hands  of  the  Chinese  Government.  It  is  possible, 
however,  that  foreign  nations  now  having  the  right  to  demand  the 
free  importation  of  these  articles  would  not  be  willing  to  leave  the 
regulation  of  their  importation  entirely  in  the  hands  of  the  Chinese 
Government.  They  would  fear  that  such  use  might  be  made  of  the 
power  that  it  would  hamper  business.  In  order  to  prevent  such  a 
result  they  will  possibly  insist  that  no  restrictions  be  placed  upon 
importation  until  a  sufficient  number  of  new  coins  are  in  circulation 
to  prevent  any  undue  scarcity  of  money.  The  determination  of  this 
point  is  somewhat  difficult.     Two  methods  have  been  suggested. 

(1)  When  fixed  numher  coined. — That  treaties  be  negotiated  de- 
claring that  as  soon  as  China  has  a  certain  fixed  number  of  the 
new  (M)ins  in  circulation  the  Chinese  Government  shall  thereafter 
impose  such  restrictions  as  seem  to  it  wise.  So  little  is  known,  how- 
ever, regarding  the  money  actually  in  circulation  in  China  and  the 
amount  actually  needed  for  doing  business  that  it  is  probable  that 
great  difficulty  would  arise  in  securing  agreement  upon  the  quantity 
needed.  Many  business  men  would  think  it  preferable  to  leave  the 
matter  to  be  settled  by  some  joint  counnission  made  uj)  of  repi'esenta 
fives  of  the  Chinese  Govei-nmcnf,  Chinese  business  men,  and  of  for- 
eign governments  and  business  men. 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  153 

(2)  When  special  hoard  agrees. — Tt  has  been  siio-o-osted,  for  exam- 
ple, that  the  power  of  restrictino-  inii)ortation  sliall  he  exercised  by 
the  Chinese  (loverunienl  whenexer  the  })resi(ient  of  the  board  of  reve- 
nue, the  eontroUer.  antl  the  niana<iers  of  the  national  bank  repre- 
senting" the  Chinese  (lovernnient.  and  authorized  representatives  of 
the  Shan«:hai  and  Tientsin,  English,  American,  and  Chinese  cham- 
bers of  commerce  shall  agree  by  a  majority  vote  that  the  proper  time 
has  come.  It  is  possible  that  it  would  be  wise  to  add  to  this  commit- 
tee the  ministers  of  the  foreign  powers  resident  in  Peking  or  a  cer- 
tain number  of  consuls,  but  it  is  probal)le  that  this  would  simply 
increase  the  difficulties  and  be  of  no  advantage  w'hatever.  A  com- 
mittee representing  the  business  men  Avould  probably  be  more  satis- 
factory to  other  nations  as  well  as  to  China. 

2.  METFIOD  OF  NEGOTIATION. 

In  the  case  of  the  revision  of  the  treaties  one  should  consider 
where  and  how  such  treaties  should  be  negotiated. 

(fl)   In  China. 

If  they  were  negotiated  at  Peking  wdth  the  ministers  of  the  for- 
eign powers,  owing  to  the  desire  of  each  minister  to  make  as  strong 
a  record  as  possible  for  accomplishing  much  for  his  government, 
and  to  his  natural  desire  to  gratify  his  nationals  and  to  secure  more 
than  do  other  members  of  the  diplomatic  corps,  jealousies  are  likely 
lo  arise  wdiich  make  it  difficult  to  secure  satisfactory  results. 

Moreover,  the  authorities  in  the  home  governments,  owing  to  their 
lack  of  knowledge  of  actual  conditions  in  China,  are  likely  to  hamper 
very  seriously  the  actions  of  their  ministers  resident  in  Peking  and 
thus  lead  again  to  delay  and  difficulty. 

(?>)   In  Foreign  GorNTRiES. 

For  the  reasons  given  above  it  is  usually  better  for  the  Chinese 
Government  to  negotiate  general  treaties,  requiring  the  agreement 
of  several  nations,  in  foreign  countries,  provided  she  can  have  the 
services  there  of  men  who  are  thoroughly  well  acquainted  with  the 
subject  in  hand.  It  is  asked,  therefore,  whether  it  would  not  be 
better  for  China  to  send  to  the  foreign  countries  to  assist  the  Chinese 
ministers  in  making  these  treaties  and  in  keeping  them  uniform, 
some  representative  Chinese  who  is  fully  in  the  confidence  of  the 
Government,  together  with  some  expert  W'ho  knows  fully  the  mone- 
tary situation  in  China  and  can  explain  with  the  greatest  clearness 
to  the  foreign  offices  the  exact  needs  of  China  and  the  benefit  to  those 
countries  from  acceding  to  her  request.  By  such  a  method  probably 
the  l)est  results  would  be  reached  most  quickly. 

XI.  COMPARISON    OF    THE  TWO    PLANS    OF    STARTING    THE  NEW 
MONETARY  SYSTEM. 

Before  undertaking  any  matter  of  so  great  importance  as  the 
reform  of  a  country's  monetary  system,  it  is  advisable  to  make  very 
careful  estimates  of  the  cost  and  of  the  results.  Unless  this  is  done, 
mistakes  are  likely  to  be  made  which  will  prove  very  expensive 
financially  and  which  may  easily  cause  failure. 


154  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

In  the  following  comparison  of  the  costs  and  results  of  the  two 
plans.  (1)  that  which  starts  Avith  the  silver  coins  given  a  fixed  value 
in  gold  and  (2)  that  which  starts  with  the  silver  coins  at  their  bul- 
lion value  and  later,  after  the  accunndation  of  a  gold  reserve,  raises 
them  to  a  fixed  value  in  terms  of  gold,  it  is  assumed,  for  convenience 
of  comparison  and  because  the  calculating  tables  make  it  more  con- 
venient, that  the  interest  both  paid  and  received  is  at  5  per  cent, 
and  that  £1  sterling  equals  10  of  the  new  dollars,  (At  present  £1 
sterling  equals  about  $10.11  Mexican.) 

In  actual  practice  the  Government  might  probably  have  to  pay 
from  5i  to  6  per  cent  on  a  loan,  but  if  so  it  might  possibly  be  able 
to  invest  also  at  somewhat  above  5  per  cent.  AA^iether  the  figures 
in  themselves  are  exactly  accurate  or  not,  the  comparison  of  the  two 
plans  will  be  fair. 

Table  V." 

Beginning  ivitJi  a  gold  reserve: 

Borrow  at  5  per  cent  Interest $40,000,000 

Animal  interest  charge 2,000.000 

Result  at  the  end  of  five  years : 

Amount  of  coins  in  circulation 200,000,000 

Gold  reserve  on  hand  sufficient  for  the  needs 07,000.000 

To  pay  debt  in  five  years  requires  in  sinking  fund  annually 7,240,000 

Annual  interest  charge 2,000.000 

Total  annual  payment 9,240,000 

Result  at  the  end  of  ten  years : 

Amount  of  coin  in  circulation 400.000.000 

Gold  reserve 107,000.000 

To  pav  debt  in  ten  years  requires  in  sinking  fund  annually 3, 180.  000 

Annual  interest  charge 2,000,000 

Total  annual  payment 5,180,000 

[Loan  for  thirty  years:  payment  to  begin  after  ten  years.] 

Result  at  the  end  of  twenty  years : 

Amount  of  coins  in  circulation 800,000,000 

Gold  reserve 187.000,000 

Annual  expenses,  first  ten  years 2,000,000 

Annual  expenses,  second  ten  years 3,208,000 

Annual  expenses,  third  ten  years 3,208,000 

Total  expense  for  thirty  yeai-s 84,  1(50,  0(K) 

Total  expense  for  first  twenty  .years .52,080,000 

Beginning  irith  silver  to  (teentnuiuie  gold: 
Result  at  the  end  of  five  years — 

Amount  of  coins  in  circulation 200,000.000 

Gold  reserve,  as  before 07,000,000 

To  raise  .$()7,000,000  in  five  years,  with  money  invested  at 
5  per  cent  and  used  for  no  other  purpose,  the  annual 
payment  is 12,127,000 

« In  these  tables  there  have  been  iised  as  the  basis  for  the  calculations  the 
interest  and  bond  tables  of  the  Mutual  r>if('  Insurance  Company,  of  New  York, 
ir  oliirr  tallies  w<'re  used  with  more  or  fewer  decimals,  the  results  would  be 
sliglitiy  different. 


GOLD    STANDARD    TN    INTERNATIONAL   TRADE.  1,55 

Beginninn  irith  silrrr  to  accuinuUttc  c/old — Continued. 
Result  at  the  end  of  ten  years— 

Amount  tif  coins  in  cii-culation $400,000,000 

Gold  rest'i-ve.  as  lK>fore 107,000,000 

To  raise  .$107,000,000  in  teu  years  requires  an  annual  pay- 
ment of 1_       8,50(5,500 

To  raise  even  $<»7.000,000  in  ten  years  requires  an  annual 

payment  of  .5,  ;}2(;,  .500 

Result  at  the  end  of  twent.v  years — 

Amount  of  coins  in  circulation 800,000,000 

(Jold  reserve,  as  before 187,000,000 

Annual  expense 5,047,400 

Total  expense  for  twenty  years 112,948,000 

To  close  the  whole  transaction  in  five  years  on  the  first  plan  there 

would  l)e  a  yearly  saving  of 2,887,000 

To  close  the  whole  transaction  in  ten  years  on  the  first  plan  there 

would  he  a  yearly  saving  of .3,  .326,  500 

To  close  the  whole  transaction  in  thirty  years  as  recommended, 
malving  payments  on  the  principal  of  the  debt  the  last  twenty 
years,  there  would  be  a  total  saving,  over  merely  raising  a  gold 
reserve,  in  twenty  years  of 28,788,000 

Advantages  of  the  p'st  plan. —  (1)  The  gold  parity  from  the  begin- 
ning, preventing  the  fluctuations  from  exchange  and  all  losses  to  the 
Chinese  Government  in  taxes,  etc.,  from  any  fall  in  the  price  of  silver. 
(2)  The  cost,  on  a  ten-year  basis,  including  the  payment  of  the  debt, 
less  each  year  by  $3,326,500. 

It  would  probably  be  more  convenient  for  China  to  borrow  the 
money,  to  pay  in  thirty  years,  with  the  privilege  of  paying  at  any 
time  after  ten  years,  then  for  the  first  ten  years  to  pay  only  the  inter- 
est ;  that  is,  $2,000,000  annually.  Afterwards  the  accumulations  will 
probably  enable  the  debt  to  l>e  paid  very  promptly,' or  at  any  rate 
to  be  refunded  at  a  lower  rate  of  interest.  If,  however,  it  should  be 
decided  to  carrv  the  debt  for  the  full  thirty  years,  at  the  end  of  ten 
years  the  Government  could  begin  accunudating  money  in  a  sinlcing 
fund.  This  Avould  require  an  additional  payment  for  twenty  years 
of  $1,208,000  each  year.  The  result  would  therefore  be  that  for  ten 
years  the  Government  would  pay  each  year  $2,000,000;  for  the  suc- 
ceeding twenty  years  it  Avould  pay  each  year  $3,208,000.  There  can 
be  little  doubt,  however,  that  as  a  result  of  the  great  benefits  to  the 
country  of  the  new  system  the  burden  of  these  last  figures  could  be 
very  nnich  lightened. 

It  should  be  Ixn-ne  in  mind,  too,  that  under  the  second  system  there 
would  be  all  the  fluctuations  in  exchange  for  at  least  ten  years;  that 
these  fluctuations  would  probablv  continue  for  five  years  more,  wiiile 
the  gold  value  of  the  coins  is  being  established,  and  that  during  that 
five  years  there  Avould  need  to  be  a  complete  readjustment  of  prices 
throughout  the  country,  which  would  disturb  business  very  decidedly. 
Under  the  first  phin  the  only  disturbance  to  business  would  be  at 
the  beginning  for  four  or  five  years,  and  this  would  not  be  more  ap- 
preciable than  it  must  be  anyway  during  these  same  five  years  in 
starting  on  the  silver  basis. 


156  GOLD    STANDARD    IN    INTERNATIONAL    TRADK. 

XII.  TO    BEGIN    THE    MONETARY    SYSTEM    ON    A   GOLD    BASIS 
WITHOUT  A   LOAN. 

1.  AT  SAME  RATE  AS  WITH  LOAN. 

It  has  been  suggested  that  if  the  neAv  system  were  to  begin  on  the 
silver  basis,  it  might  not  be  necessary  to  wait  ten  years  before  putting 
the  silver  coins  on  a  gold  basis.  It  might,  perhaps,  be  done,  it  is 
thought,  in  three  years  or  five  years.  It  is  not  worth  while  to  esti- 
mate carefully  the  relative  costs  of  this  procedure.  If  the  system 
begins  by  issuing  the  coins  at  a  fixed  gold  value,  the  gold  reserve  may 
begin  very  small  and  increase  gradually  in  proportion  to  the  number 
of  new  coins  in  circulation.  If  gold  enough  can  be  raised  by  the 
Government  to  change  from  the  silver  basis  to  the  gold  basis  in  five 
years,  the  system  can  be  started  on  a  gold  basis  without  making  any 
loan  by  raising  the  same  amount  of  money  in  the  same  way ;  and  at 
the  end  of  five  years,  on  account  of  the  greater  profits  of  the  gold 
system,  there  will  be  on  hand  $33,000,000  more  in  a  gold  reserve  than 
if  the  start  is  made  on  the  silver  basis.  The  figures  to  show  this 
follow : 

There  must  be  raised  each  year  $12,127,000  to  accumulate  in  five 
years  by  a  sinking  fund  $67,000,000,  the  smallest  amount  planned  to 
change  the  new  system  to  a  gold  basis  at  that  time  with  200,000,000 
new  silver  coins  in  circulation.  If  there  can  be  raised  only  $12,000,- 
000  each  year,  it  would  be  easy  to  start  on  the  gold  basis  at  once 
without  making  any  loan. 

Table  VI. 
First  yeai" : 

Coin $40,  000,  000 

Of  tliis  iu  small  silver  and  copper  coins 10,000,000 

Silver  which  can  be  used  to  draw  on  gold  reserve 30,  000,  000 

Raise  by  taxation  and  place  in  gold  reserve 12,  000,  000 

Profits  from  coinage,  at  20  per  cent 8,000,000 

Total  reserve  at  end  of  first  year 20,000,000 

This  is  6C§  per  cent  of  the  amount  available  to  draw  on  and  will  probably 
be  ample. 

Second  year : 

Coin $40,  000,  000 

Total  in  circulation 80,000,000 

Available  for  draft  on  gold  fund,  not  over 70,  000,  000 

Jieserve  already  (m  band 20,  000,  000 

Raised  by  taxation  during  second  year 12,000,000 

Profits  of  coinage,  at  20  per  cent 8,  000,  000 

Total  reserve  end  of  second  year 40,000,000 

This  is  57,1  per  cent  and  Miii]ilt'  for  the  second  year. 

Third  year : 

Total  circulation  would  be 120,000,000 

Reserve 00,000,000 

Fourth  year : 

Total   circulation 160,000,000 

Reserve 80,000,000 

Fifth  year : 

Total   circulation -  200.000.000 

Reserve 100,  000,  000 


GOLD    WTANDAKI)    IN    INTERNATIONAL    TRADK.  157 

The  rosorve  is,  tlion,  at  (he  oncl  of  the  fifth  year  $:in,00f),000  more 
than  under  tlie  other  phin  at  the  end  of  an  equal  period,  and  is 
large  enough  so  that  by  adding  merely  the  annual  prolits  of  the  coin- 
age to  the  reserve,  stopi)ing  after  five  years  all  further  taxation  for 
this  purpose,  it  will  be  suflicient  to  protect  the  coinage  for  twenty 
years  from  the  beginning,  if  the  mints  work  at  the  same  rate. 

Besides  this  benetit  there  has  l)een  no  disturbance  of  business  as 
Muder  the  other  system,  Avhich  involves  a  change  from  silver  prices  to 
gold  prices,  and  the  same  rate  of  taxation  need  be  maintained  a  much 
.shorter  time. 

It  is  probable  that  during  the  later  years  a  less  reserve  might  be 
needed  than  is  indicated ;  but  that  fact  would  be  still  more  to  the 
advantage  of  the  system  which  starts  on  the  gold  basis.  Confidence 
is  gained  some  j^ears  sooner  and  more  gold  is  readily  available  to  be 
put  to  other  uses. 

The  advantage  in  this  case,  as  in  all  the  others,  comes,  of  course, 
from  the  added  coinage  profit  when  silver  coins  are  issued  at  a  gold 
value. 

2.  AT  SLOWER  KATE  THAN  WITH  LOAN. 

It  being  considered  by  some  inadvisable  for  China  to  make  any 
loan  in  connection  Avith  the  new  monetary  system,  the  following  new 
estimates  are  given  to  show  the  probable  cost  of  establishing  the 
monetary  system  without  a  loan,  in  a  cheaper,  though  not  quite  so 
ra])id  a  way  as  with  a  loan. 

It  has  been  suggested  by  the  monetary  commission  that  China  could 
})i-obal)ly  raise  T,0()0,()0()  taels  to  start  the  new  monetary  system.  In 
the  following  estimates  it  is  suggested  that  7,000,000  taels  each  year 
be  raised  for  the  first  tw^o  years;   thereafter  3,500,000  taels  annually. 

It  is  probable  that  after  the  sixth  year  the  percentage  of  reserve 
could  be  reduced  somewhat,  so  that  quite  possibly  no  further  sums 
would  need  to  be  contributed  by  the  Government  for  the  further  de- 
velopment of  the  system. 

It  is  assumed  for  the  pur])ose  of  maintaining  whole  numbers  in  the 
computations  and  for  the  purpose  of  keeping  the  estimates  in  dollars, 
so  as  to  admit  of  more  ready  comparison  with  previous  paj^ers,  that 
$1  equals  TO  tael  cents.  Seven  million  taels  then  would  equal 
$10,000,000. 

For  the  first  year  it  is  assumed  that  half  of  this  sum  is  set  aside  as 
a  reserve  and  that  half  is  used  as  working  capital.  For  the  second 
year  and  thereafter  $10,000,000  is  kept  as  Avorking  capital.  By 
"  working  caintal  ''  is  meant  particularly  the  money  used  for  the 
purchase  of  bullion  and  mint  supplies. 

No  account  is  taken  of  the  interest  on  the  reserve.  This  could  be 
used  either  to  reduce  the  annual  contribution  from  taxation  or  to  in- 
crease the  rate  of  coinage,  thus  insuring  the  more  raj^id  success  of  the 
system.  The  main  difficidty,  of  course,  will  be  during  the  first  two 
years,  but  it  is  not  thought  that  these  difficulties  are  by  any  means 
insuperable. 

This  i^hin  would  secure  for  China  the  fixed  value  in  gold  of  the 
new  coins  from  the  beginning,  it  would  save  the  high  j)rofit  from 
seigniorage,  and  it  would  avoid  any  loan.  The  uprightness  and  skill 
required  for  the  management  would  be  substantially  the  same  as  in 
previous  plans. 


158       GOLD  STANDARD  TN  INTERNATIONAL  TRADE, 

Table  VII. 

First  year : 

Working  capital $5,000,000 

Reserve    5,  000,  fK)0 

Coin ■ 20,  000,  WO 

Profit  to  add  to  reserve 4,  0(»(i,  (»()<» 

Total  circulation 1 20,  000,  (J<JO 

Total  reserve 9,000,000 

Second  year : 

Working  capital 10,  000,  000 

Coin 40,000,000 

Profit  to  add  to  reserve 8,000,000 

In  circulation 60,  OCX),  0(J<J 

Former  reserve 9,000,000 

Add  I'eserve  from  taxation 5,  0(to,  000 

Total    reserve 22,  000,  000 

Third  year : 

Working  capital 10,  000,  000 

Coin 40,  000,  000 

Profit  to  add  to  reserve 8,000,000 

In  circulation l 100,  000,  000 

Former  reserve 22,  000,  000 

Add  reserve  from  taxation 5,000,000 

Total  reserve 35,  000,  000 

Foui'th  year : 

Working  capital 10,  000,  000 

Coin 40,  0(X),  000 

Profit  to  add  to  reserve 8,000,000 

In  circulation 140,  000,  000 

Add  reserve  from  taxation 5,000,000 

Former  reserve 35,000,000 

Total   reserve 48,  000,  000 

Fifth  year : 

Working  capital 10,  000,  000 

Coin 40.000,000 

Profit  to  add  to  reserve 8,000,000 

In    circulation 180,  000,  000 

Former  reserve 48,  000,  000 

Add  reserve  from  taxation 5.000,000 

Total    reserve 61,  000,  000 

Sixth  year : 

Working   capital 10,  000,  000 

Coin     40, 000. 000 

Profit  to  add  to  reserve 8,000,000 

In  circulation 220,  000.  000 

Former  reserve 61,  000,  000 

Add  reserve  from  taxation 5,000,000 

Total    reserve 74,  000,  000 

•  l^Tiile  the  reserve  seems  small  for  the  first  two  years,  it  should  be 
kept  in  mind  that  the  new  copper  and  nickel  coins,  which  might  make 
*a  considerable  ])art  of  the  coins  in  circulation,  Avould  make  little,  if 
any,  demand  upon  the  reserA^e.  Furthermore,  the  rate  of  coinage 
might  be  checked  somewhat,  if  more  time  seemed  advisable  to  secure 
confidence,  and  thus  lessen  the  demand  on  the  reserve. 

XIII.  COINAGE  SPECIFICATIONS. 

The  following  specifications  regarding  coinage  are  suggested  as 
perhaps  reasonable  if  it  is  decided  to  establish  the  new  monetary  sys- 
tem on  the  silver  basis  and  to  make  the  new  dollar  seventy-two  one- 
liundredtlis  of  a  K''ui)'ing  tael,  as  the  committee  has  proposed.  It  is 
quite  possible  that  the  specifications  would  be  equally  satisfactory  if  it 


GOLD    STANDARD    TN    INTKllNATIONAL    TRADE. 


159 


wero  docidod  to  o^ivi^  Iho  coins  a  fixed  value  in  terms  of  fjold,  but  in 
that  case  the  matter  shouhl  be  discussed  again  fully  before  the  coinage 
is  begun.  These  weights  are  in  decigrams,  so  as  to  make,  generally 
speaking,  wliole  numbers. 

Inasnnich  as  the  coins  are  ultimately  to  be  given  a  value  independ- 
ent of  their  weight,  it  is  .inadvisable  to  refer  to  their  tael  weight, 
either  on  the  coin  or  in  the  law.  Moreover,  the  tael  Aveight  is  not  ex- 
actly known  and  uniform,  so  that  it  will  be  necessary  for  the  (lovern- 
ment  to  fix  weights  in  grains  or  decigrams  before  the  confidence  of 
business  men,  native  or  foreign,  can  be  secured  and  held.  The  metric 
system  is  followed  here  as  the  system  most  generally  approved. 

According  to  the  treaty  with  Japan  regarding  the  settlement  of  tlie 
war  indemnity  in  gold,  it  was  decided  for  that  special  purpose  that 
the  K'up'ing  tael  was  575.82  grains.  This  gives  the  weight  of  sev- 
enty-two one-hundredths  of  a  K'up'ing  tael  as  268.65  decigrams.  The 
silver  standard,  therefore,  in  the  nearest  divisible  round  numbers 
would  be  268  decigrams.  We  had  therefore  suggested  the  following 
table : 

Table  VIII. 


Gross 
weight 
in  deci- 
grams. 


Kind  of 
alloy. 


Amount 
of  alloy. 


One  dollar 

Fifty  cents... 
Twenty  cents 
Ten  cents 


268.0 
134.0 
53.6 
26.8 


Copper. 

do... 

....do... 

...do... 


0.1 
.2 


.2 


If  it  were  thought  not  unwise  to  make  the  new  dollar  a  trifle 
heavier  than  the  present  one  (and  there  would  be  no  objection  to 
this  if  it  Avere  given  a  gold  value),  there  would  be  an  easier  division 
if  the  dollar  were  to  weigh  270  decigrams.  In  that  case  the  dollar 
should  be  given  a  gold  value  presumably  of  some  55  cents  American 
or  2s.  3d.  English.  Should  silver  rise  much,  it  might  be  Avell  to  make 
the  coin  60  or  62.5  cents  American ;  or  it  might  be  thought  best  to 
give  the  new  dollar  a  value  of  exactly  50  cents  American  (gold)  or 
2s.  English  and  make  the  coin  slightly  lighter  than  the  Mexican 
dollar,  so  that  there  Avould  remain  a  coinage  profit  of  15  or  20  per 
cent,  a  sufficient  margin,  perhaps,  for  any  probable  rise  in  the  price 
of  silver  bullion;  but  the  question  of  exact  gold  value  is  not  under 
consideration  here. 

Table  IX. 


Gross 
weight 
in  deci- 
grams. 

Percentage  composition. 

Copper. 

Nickel. 

Tin. 

Zinc. 

Five  cents 

50.0 
70.0 

a5.o 

25.0 
12.5 

75 
95 
95 
50 
50 

25 

One  cent 

1 

1 

4 

Half  cent      

4 

Two  mills  (cash) 

50 

One  mill 

50 

The  legal  limit  of  variation  from  these  weights  and  degrees  of 
fineness  should  be  made  to  conform  substantially  to  those  of  the 
leading  countries. 


160  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

XIV.  FOREIGN  EXPERTS  FOR  THE  CHINESE  MONETARY  SYSTEM. 
1.  DIFFICULTIES  OF  TASK;  REASONS  FOR  FOREIGNERS. 

Tiie  successful  organization  and  direction  of  a  monetary  system  is 
one  of  the  most  complicated  and  difficult  problems  which  any  state 
has  to  undertake.  The  exj^erience  of  nearly  eveiy  state  of  Europe^ 
and  of  America  shows  that  mistakes  in  such  systems  bring  enormous 
losses  in  commerce  and  industry  to  the  countries  concerned,  and  that 
frequently  such  mistakes  lead  to  commercial  crises  from  the  eli'ects 
of  which  a  country  does  not  recover  for  several  years.  Moreover, 
rhey  often  leave  a  system  permanently  faidty. 

The  starting  of  a  new^  monetary  system  in  a  country  like  China, 
Avith  its  enormous  population,  its  great  extent  of  territory,  its  incom- 
plete methods  of  communication,  and  its  mingling  of  foreign  and 
Chinese  business  methods,  is  a  task  of  especial  difficulty,  and  this 
makes  it  of  particular  importance  that  no  mistakes  be  made  at  the 
beginning.  China  should  have  the  advice  of  some  of  the  best  experts 
in  the  world. 

A  few  of  these  experts  must  at  first  probably  be  foreigners  for  the 
following  reasons : 

(a)  Few  Chinese  Experts. 

It  seems  to  be  the  general  opinion,  Chinese  and  foreign,  that, 
OAving  to  her  previous  methods  of  doing  business  without  a  well- 
organized  monetary  system,  there  are  at  present  no  Chinese  Avho 
have  the  requisite  training  and  experience  to  undertake  the  task 
without  foreign  assistance. 

(6)  Need  of  Confidence. 

Even  if  there  Avere  such  Chinese  at  present,  it  is  generally  said  that 
neither  Chinese  business  men  nor  foreigners  have  the  confidence  in 
Chinese  experts  that  is  absolutely  essential  to  the  success  of  the  neAv 
system,  while  they  do  have  confidence  in  trained  foreigners  of  repu- 
tation. As  the  system  can  not  succeed  unless  the  people  give  it  their 
confidence,  it  is  apparent  that  some  foreigners  of  special  ability  and 
reputation  should  be  engaged  at  first.  The  refusal  on  the  part  of 
the  Chinese  Government  to  engage  such  ex])erts  Avould  certainly  be 
mterpreted  to  its  discredit  by  some  of  the  leading  Chinese  business 
men  themselves,  as  Avell  as  by  foreign  business  men  and  by  foreign 
Governments.  From  Avhat  is  often  said  by  Chinese  business  men 
they  might  readily  interpret  such  action  as  cAndence  of  a  lack  of  sin- 
cerity and  of  good  faith  on  the  part  of  the  Chinese  Government. 
They  might  even  interpret  it  to  mean  that  the  Chinese  officials 
undertalving  the  Avork  had  their  own  special  profit  in  view  rather 
than  the  benefit  of  the  Chinese  people. 

2.  RELA'PIVE  NEED  FOR  EXPERTS  UNDER  TPIE  TWO  SYSTEMS. 

Under  Avhich  method  of  beginning  the  ncAV  monetary  system  are 
experts  most  needed? 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       161 

(a)   Unpek  Silvek  System. 

The  syi^tom  Avliicli  start^^  Avith  tlio  introdnctioii  of  tlic  silver  coins 
issued  lit  their  bullion  value,  with  the  intention  of  raising  those  coins 
within  a  few  years  to  a  fixed  value  in  terms  of  gold,  is,  in  the  long 
run,  the  more  difficult,  and  certainly  recjuires  as  able  experts  as  the 
other.  Moreover,  these  experts  are  as  much  needed  at  the  beginning 
of  the  system. 

(1)  Care  must  be  taken  that  nothing  is  done,  either  in  determin- 
ing the  form  of  the  coins,  their  relative  Aveights  and  relations  to  one 
another  and  to  the  coins  already  in  existence  or  in  their  methods  of 
introduction  which  y\i\\  hamper  the  change  to  a  gold  system  when 
the  proper  time  shall  have  arrived. 

(2)  The  problem  arising  from  melting  and  exportation  of  many  of 
the  new  coins,  together  with  the  old,  will  make  it  far  more  difficult  to 
secure  and  keep  accurate  information  regarding  the  conditions  of 
the  currency,  so  as  to  know  when  and  how^  to  undertake  the  change. 
There  will  be  no  melting  of  the  coins  under  the  gold  system. 

(3)  A  gold  reserve  must  bo  gradually  accumulated.  The  provid- 
ing and  nuinaging  of  sources  of  revenue  for  this  gold  reserve  and  the 
due  investment  of  it  until  a  sufficient  amount  of  it  has  been  accumu- 
lated, requires  much  skill  and  discretion,  else  there  will  be  a  great 
waste. 

(4)  \Mien  business  has  once  become  adjusted  to  the  new  system 
of  coins,  and  the  present  coins  and  sycee  are  largely  out  of  the  way, 
business  men  will  shrink  from  the  disturbance  of  business  which 
another  change  is  sure  to  create,  and  it  will  require  great  confidence 
in  the  controller  of  the  currency  on  the  part  of  the  people  and  great 
skill  on  his  part  to  select  the  right  time  to  begin  the  change  and  to 
Hnd  the  right  methods  to  carry  it  through  without  arousing  severe 
criticism  and  causing  the  greatest  confusion  in  business. 

(h)   Under  Gold  System. 

Under  the  system  of  starting  with  gold  the  main  tasks  at  first  will 
be  the  following: 

(1)  There  will  be  the  same  care  to  be  taken  regarding  the  forms 
of  the  coins,  the  purity  of  the  minting,  etc. 

(2)  The  problems  of  introducing  the  coins  among  the  peoj^le,  inas- 
much as  their  value  wall  not  depend  upon  their  weight,  seems  some- 
Avhat  different  from  that  in  the  other  case  and  somewhat  more 
difficult.  In  reality  it  is  about  the  same.  In  both  cases  the  Govern- 
ment nuist  fix  and  nnist  regulate  from  time  to  time,  for  tax  purposes 
and  for  all  Government  business,  the  varying  rates  of  exchange  of  the 
new  coins  for  bullion  silver,  copper  cash,  the  present  dollars,  etc. 
This  must  be  done  for  all  Government  business.  Private  banks  and 
merchants  will  make  their  own  rates,  but  in  practice  they  Avill  accept 
mostly  the  Government  rates.  This  difficult  task  must  be  met  in 
ether  case,  whether  the  coins  be  given  a  gold  value  or  not.  It  makes 
little  difference  to  the  people  w^hether  the  rate  for  1  tael  is  $1.31,  say, 
under  the  silver  plan  or,  say,  $1.10  under  the  gold  parity. 

(3)  Unless  the  Government  can  raise  considerable  revenue  for  the 
first  four  or  five  years  it  will  be  necessary  to  raise  a  small  loan;  in 

S.  Doc.  128,  58-3 11 


162  GOLD   STANDAED    IN    INTERNATIONAL    TRADE. 

fact,  it  will  probably  be  much  easier  to  raise  the  loan  than  to  secure, 
under  the  first  plan,  the  requisite  revenue  for  the  accumulation  of  a 
gold  reserve  by  a  sinking-  fund. 

(4)  Treaties  with  foreign  powers  regarding  prohibition  of  impor- 
tation of  foreign  coins,  bullion,  etc.,  must  be  negotiated  in  either 
case,  but  they  would  probably  take  effect  first  under  the  plan  of 
starting  on  the  gold  basis.  It  is  probable  that  they  would  be  more 
readily  secured  from  foreign  governments  under  that  plan. 

3.  Experts  needed  especially  at  beginning  of  system. 

The  experts  are  needed  especially  at  the  beginning  of  the  system. 

(o)  Making  Plans  is  Difficult. 

The  making  out  of  the  detailed  j)lans  regarding  coinage,  the  intro- 
duction of  the  system,  organization  of  the  bank,  rules  for  minting, 
etc.,  and  the  organization  of  the  whole  of  the  Avorking  force  is  by  far 
the  most  difficult  part  of  the  problem.  After  the  system  has  been 
thoroughly  organized  and  has  been  running  well  for  a  few  years 
much  less  expert  knowledge  will  be  required. 

(h)  Making  Plans  Most  Important  Part  of  Work. 

The  first  work,  as  may  be  judged,  is  not  only  the  most  difficult 
part,  but  it  is  by  far  the  most  important  part  of  the  work,  inasmuch 
as  it  involves  the  making  of  far-reaching  plans  Avhich  are  to  affect 
the  welfare  of  every  person  in  the  Empire  for  many  decades  to  come. 

When  a  battle  ship  is  to  be  built  or  a  great  manufacturing  estab- 
lishment to  be  organized  the  experts  are  called  in  at  the  very  begin- 
ning to  make  the  detailed  plans. 

(c)  Mistakes  at  Beginning  Often  Irreparable. 

Mistakes  in  making  the  plans  at  the  beginning  are  usually  irrep- 
arable, and  even  if  not  absolutely  irreparable  it  will  prove  exceed- 
ingly expensive  to  change  to  a  better  plan.  Few  countries  in  the 
world  to-day  have  monetary  systems  that  they  consider  perfect  on 
account  of  mistakes  that  have  been  made  in  the  beginning  which  it 
has  been  impossible  thereafter  to  rectify. 

Consider  again  the  difficulty  of  remodeling  a  battle  ship  half  built 
on  wrong  plans  made  by  a  poorly  trained  naval  architect,  or  of  a 
great  factory  buildiug  poorly  planned  for  the  machinery  which  is  to 
be  used  and  for  the  work  to  be  accomplished. 

4.  SELECTION  OF  EXPERTS. 

The  Chinese  Government  will  do  well  to  be  cautious  in  employmg 
foreigners,  but  it  should  be  remembered  that  the  Chinese  Govern- 
UKMit  selects  tlie  foreign  experts  not  as  its  masters  but  as  its  trained 
workmen. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       163 

(fl)   Fou  AiJiLiTY  AND  Fitness  Only. 

Exports  should  bo  soloctod  only  for  thoir  ability  and  for  tlioir  fit- 
ness of  their  positions.  The  Chinese  Government  shoud  not  give 
anj'  person  a  position  to  ])lease  a  foreign  government,  or  because  he 
has  paid  for  that  position,  or  merely  because  he  is  a  friend  of 
(^liina's.  While  he  nnist  be  friendly  to  China  and  devoted  to  her 
interests  in  his  business,  he  must  first  of  all  l)e  an  expert  who  knows 
his  business  thoroughly.  He  should  also,  of  course,  understand  as 
fully  as  possible  Chinese  coiulitions,  but  it  is  far  easier  in  China  for 
a  thorough  expert  to  become  posted  regarding  Chinese  conditions 
than  for  a  person  knowing  Chinese  well,  but  not  an  expert,  to  become 
an  expert. 

(&)  Contracts  Definite. 

Contracts  should  be  made  with  the  exiDcrts  which  are  perfectly 
definite. 

(1)  As  regards  time. — It  is  probable  that  it  would  be  well  to 
engage  these  experts  for  a  fixed  {period  of  not  over  five  years,  with 
chance  of  renewal  of  contract,  with  the  right  to  discharge  them  at 
an,y  time  in  case  they  prove  inefficient  or  in  case  they  exceed  their 
poAvers. 

(2)  As  regards  poiDe7-s. — The  contract  should  be  perfectly  explicit 
regarding  the  field  of  work  which  the  expert  occupies.  While  he 
should  be  given  much  discretion  in  his  special  field,  an  attempt  to 
control  matters  outside  of  his  field  without  a  new  contract  in  which 
the  Chinese  Government  joins  should  be  sufficient  cause  for  his 
prompt  discharge. 

(c)  Associate  Chinese  with  Experts. 

Associate  with  the  three  or  four  leading  experts  Chinese  of  ability 
appointed  to  prominent  positions,  Avho  may  know  all  of  the  details 
of  the  work  of  the  expert  and  themselves  become  expert.  They 
shouhl  not  be  given  power  to  hamper  the  work  of  the  exi:>ert,  as  he 
must  take  the  responsibility  under  the  monetary  commission;  but 
they  should  have  the  right  to  know  everything  that  he  does  in  his 
work,  to  make  suggestions,  to  give  him  information  regarding 
Chinese  conditions,  and  to  aid  ii^  directing  the  Chinese  employees. 

((Z)   Establish  Training  School  Under  Experts. 

There  should  be  established  under  these  experts  schools  in  which 
should  be  trained  in  this  special  field  of  work  Chinese  to  take  posi- 
tions in  the  department  as  the  work  develops. 

The  way  to  get  rid  finally  of  the  foreign  experts  is  by  training  men 
who,  from  their  training,  experience,  high  character,  and  the  confi- 
dence of  the  business  community,  are  fitted  to  take  their  places.  A 
failure  or  serious  mistake  in  the  establishment  of  the  system  in  the 
first  place,  through  neglect  to  secure  in  time  competent  expert  assist- 
ants, would  seriously  discredit  the  Chinese  Government,  and  would 
have  the  normal  result  later  on  of  forcing  into  the  Chine.se  service 
more  experts,  and  that,  too,  for  a  longer  time  than  Avould  come  from 
a  selection  of  a  few  of  the  very  highest  grade  at  the  beginning. 


164  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

XV.  SUMMARY  OF  POINTS    IN    CONNECTION  WITH    THE  CHINESE 

MONETARY  SYSTEM. 

1.  COMPARISON  OF  TWO  SYSTEMS. 

It  has  been  proposed  by  the  Government  to  start  the  monetary  sys- 
tem on  the  silver  and  afterwards  to  change  to  the  gokl  basis.  It  has 
been  proposed  by  the  American  commissioner  to  start  the  system 
with  silver  coins  which  have  been  given  a  fixed  value  in  gold  from 
the  beginning. 

The  difficulties  of  the  introduction  of  the  system  are  substantially 
the  same  in  degree  in  either  case,  although  the  difficulties  are  in  some 
respects  slightly  different  in  kind.  In  either  case  the  same  amount 
and  character  of  foreign  expert  help  would  be  needed. 

(a)  The  same  care  must  be  taken  regarding  minting  of  the  coins. 

(b)  The  same  skill  is  required  in  the  establishment  and  manage- 
ment of  the  national  bank,  although  its  work  would  be  slightly  dif- 
ferent in  kind  in  the  two  cases. 

(c)  The  same  skill  and  care  is  requisite  in  keeping  the  accounts 
and  collecting  statistics,  wdiich  are  absolutely  essential  for  intelligent 
management  under  the  two  systems.  Inasmuch,  however,  as  under 
the  silver  system  coins  are  much  more  likely  to  be  melted  down  than 
under  the  system  of  gold  parity,  it  avouIcI  be  absolutely  impossible  to 
have  the  same  accuracy  and  knowledge  under  the  silver  system  that 
could  be  secured  under  the  gold. 

(<;/)  The  difficulties  of  securing  the  coins  among  the  people  are 
practically  the  same  in  the  two  cases,  although  it  is  usually  thought 
that  the  difficulties  are  much  less  under  the  silver  system.  That 
would  be  the  case  if  China  had  a  fully  developed  coinage  system  now, 
so  that  the  only  problem  was  that  of  exchanging  one  new  coin  for 
another  old  coin,  as  in  the  Straits  Settlements.  If  those  two  coins 
could  be  exchanged  at  par  it  would  be  easier  than  to  exchange  the 
old  silver  coins  for  one  given  a  gold  value  15  or  20  per  cent  higher, 
so  that,  say,  only  80  cents  of  the  new  coin  would  exchange  for  a  dollar 
of  the  old.  The  present  problem  in  China,  how^ever,  is  not  at  all  of 
that  nature.  This  is  a  point  which  has  "been  often  overlooked,  and 
this  mistake  has  led  to  mistaken  advice  which,  if  folloAved,  will  cost 
the  Chinese  Government  and  the  Chinese  people  many  millions  of 
dollars  and  serious  disturbances  in  business. 

The  great  bulk  of  the  business  in  China  is  done  with  silver  bullion 
and  copper  cash.  In  consequence  the  Government  is  compelled,  even 
if  it  introduces  the  ncAv  silver  coins  on  the  silver  basis,  to  give  to  them 
an  official  rate  of  exchange  in  terms  of  the  various  taels  in  circula- 
tion. For  instance,  if  the  new  coin  is  made  to  weigh  seventy-two 
hundredths  of  a  K'up'ingtael,  when  the  coin  is  introduced  into  Peking 
the  (fovernment  Avould  fix  the  rate  of  exchange  with  the  Kungfa  tael. 
The  Government  in  posting  the  official  rate  would  probably  say, 
therefore,  that  it  would  receive  in  payment  of  taxes  instead  of  a  tael 
$1.80  or  $1.31  of  the  new  coin.  In  case  the  dollar  had  been  given  a 
gold  value,  the  notice  would  be  that  for  each  tael  it  wcndd  receive 
$1.10  or  $1.12  of  the  new  coins,  depending  upon  the  rate  established. 
In  the  interior  where  the  people  are  entirely  unfamiliar  with  coins 
of  any  kind,  they  would  take  the  new  coins  on  the  gold  })asis  at,  say, 
$1.10  or  $1.12  for  the  tael  about  as  readily  as  they  would  if  the  coins 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  165 

were  on  the  silver  basis  at,  say,  $1.80  or  $1.;>2.  In  the  treaty  ports, 
where  the  people  are  aeeustomed  to  the  Peiyang  or  Hupeh  dollars,  it 
may  be  that  a  new  dollar  Avhich  should  pass  exactly  at  j)ar  with  them 
would  haye  temporarily  a  slight  adyantage.  Taking  China  as  a 
whole,  however,  the  difficulties  of  introduction  are  substantially  the 
same  on  the  gold  as  on  the  silver  basis,  provided  it  is  clearly  ex- 
plained that  the  Government  always  receives  the  new  coins  at  their 
published  gold  value  and  that  the  people  have  the  chance  to  see  that 
this  is  done  when  they  pay  their  taxes. 

(e)  The  dilliculties  after  the  first  introduction,  at  any  rate,  are 
much  greater,  immeasurably  greater,  if  the  start  is  made  on  the  silver 
system.  AYith  the  start  made  on  the  gold  system,  wdien  the  coins  are 
once  introduced  the  difficulties  are  oyer.  With  the  start  on  the  silver 
sj^stem,  when  the  coins  are  introduced  they  are  given  a  silver  value. 
When,  some  years  later,  it  is  proposed  to  change  to  the  gold  basis,  the 
people  are  told  that  the  dollar,  which  they  had  supposed  was  the 
standard,  is  no  longer  the  standard ;  that  it  is  not  as  good  as  it  ought 
to  be,  and  that  the  Government,  therefore,  proposes  to  give  it  a  higher 
value.  Whereas  before  it  was  received  at  72  tael  cents,  the  Govern- 
ment now  will  receive  it  at  74  cents,  then  at  76  cents,  then  at  78  cents, 
and  so  on,  until  it  has  reached  the  value  decided  upon,  say,  92  tael 
cents.  This  process  of  gradually  raising  the  value,  by  the  Govern- 
ment changing  its  rates  for  receiving  it  and  selling  gold  in  exchange 
for  it  at  these  rates,  must  cover  a  period  of  several  years,  otherwise 
it  will  lead  to  the  greatest  speculation  and  to  the  hoarding  of  the 
coins  to  make  the  profit  when  the  sudden  change  is  made  of  adding 
15  to  20  per  cent  to  the  value  of  the  coins;  and  this  would  probably 
cause  a  commercial  crisis. 

On  the  whole,  then,  the  difficulties  of  establishing  a  gold  exchange 
system  from  the  beginning  are  very  much  less  than  if  the  system, 
established  on  the  silver  basis,  is  afterwards  to  be  changed  to  gold. 

2.  EXPENSES  COMPARED. 

The  expenses  of  establishing  and  carrying  out  the  system  are  very 
much  less  if  one  starts  with  gold  than  if  one  starts  with  silver  and 
afterwards  changes  to  gold.  Other  papers  of  these  memoranda,  giv- 
ing the  comparative  cost  of  the  two  methods,  make  this  clear  bej^ond 
all  possibility  of  dispute. 

.S.  METHOD  OF  STARTING  SYSTEM. 

Either  system  should  begin  in  a  small  wa}',  especially  perhaps  the 
system  with  a  gold  parity.  One  province,  preferably  Chili,  should 
be  selected  first.  As  soon  as  there  is  a  suitable  amount  of  coins  on 
hand  the  Government  should  decide  that  it  would  start  the  system  in 
Peking,  say,  and  a  sufficient  quantity  of  the  new  coins  of  the  various 
denominations  for  use  in  that  city  should  be  provided.  The  people 
would  be  notified  that  the  (Government  would  exchange  these  coins 
free  of  charge  at  certain  published  rates  for  their  ])r()vincial  coins — 
sycee  and  copper  coins — and  a  suitable  lunnber  of  agencies  where  these 
exchanges  could  be  made  would  be  provided.  It  Avould  then  be  de- 
clared further  that  at  a  certain  date  in  the  future,  which  would  be 
named,  all  local  ()])ligati()ns  due  the  Government  in  cash  must  be  paid 


166       GOLD  STANDAED  IN  INTERNATIONAL  TRADE. 

in  the  new  coins.  This  would  include  the  octroi  and  small  fees  of  all 
kinds,  and  the  Government  would  establish  exchange  shops  near  the 
stations  wliere  the  chief  payments  are  made,  so  that  the  people  could, 
without  trouble,  exchange  their  sycee  and  copper  cash  for  the  new 
coins  at  fixed  legal  rates.  Of  course  for  a  time  taxes  payable  in  kind 
would  remain  as  before. 

As  soon  as  the  number  of  coins  minted  had  increased,  the  same  plan 
would  be  followed  in  Tientsin,  then,  say,  in  Pao  Ting  Fu,  etc.,  as  raj)- 
idly  as  the  new  coins  could  be  supplied  and  organization  could  be 
made  throughout  the  province  of  Chili.  The  Government  would,  of 
course,  agree  from  the  beginning  to  receive  these  coins  at  their  fixed 
gold  value  anywhere  in  the  Empire  for  obligations  due  to  it,  provided 
the  people  wanted  to  present  them.  It  would  compel  payment  of  ob- 
ligations in  these  new  coins  only  gradually  as  it  had  a  sufficient  sup- 
ply for  the  local  market  on  hand  and  had  provided  exchange  shops 
in  reasonable  numbers  for  the  people.  '  Of  course  when  these  arrange- 
ments were  made  in  the  larger  places,  the  merchants  would  soon  take 
the  coins  at  the  regular  value  in  the  villages  and  elsewhere,  so  that  in 
a  comparatively  short  time  the  change  would  be  made  from  one  money 
to  the  other  without  any  special  intervention  on  the  part  of  the  Gov- 
ernment. 

As  soon  as  the  Government  began  insisting  upon  the  receipt  of  these 
coins  in  obligations  due  itself,  it  would  also  begin  paying  out  these 
new  coins  in  the  payment  of  salaries,  for  supplies,  etc.,  paying  them 
out  at  the  same  rate  at  which  it  received  them.  Following  the  prov- 
ince of  Chili  would  come,  of  course,  the  province  of  Kiangsii,  for  the 
sake  of  Shanghai,  Kwang-tung,  Hupeh,  etc.  No  pressure,  anywhere, 
would  be  brought  upon  the  people  to  take  these  coins  excepting  to  pay 
their  obligations  due  the  Government,  and  that  would  be  done  simply 
to  accustom  the  people  to  their  use,  and  such  complete  exchange  ar- 
rangements would  be  made  that  there  would  be  no  hardship. 

4.  LOAN   AND   SECURITY. 

A  small  loan,  say  of  about  40,000,000  of  the  new  dollars,  or  a  lit- 
tle more  than  £4,000,000,  would  doubtless  be  the  most  convenient 
way  of  securing  moire}^  for  the  new  system,  though  a-  loan  is  not 
necessary  if  the  annual  revenue  can  be  increased  somewhat  for  a  few 
years.  From  careful  discussion  of  this  matter  with  people  who  are 
accustomed  to  making  loans  there  seems  little  doubt  that  China  could 
make  a  loan  at  a  reasonable  rate  of  interest,  possibly  on  the  security 
merely  of  the  gold  reserve  and  the  stock  of  coins  on  hand  in  the 
management  of  the  department,  with  the  added  guaranty  of  the 
loan  l)y  the  Chinese  Government.  It  would  doubtless  be  better, 
however,  in  many  waj^s  for  the  Government  to  supply  another  basis 
for  tlie  loan,  such  as,  say,  the  receipts  of  an  opium  farm  in  Shanghai, 
Canton,  and  one  or  two  other  cities,  and  to  keep  the  gold  reserve  to 
be  used  as  a  special  security  in  case  an  emergency  should  arise. 
However,  the  ability  of  China  to  make  the  loan  on  reasonable  terms 
is  clear.  The  advisability  of  making  a  loan  is  a  suitable  subject  for 
discussion,  and,  as  has  appeared,  China  is  probably  able  to  start  the 
system  without  a  loan  if  it  is  thought  best  to  do  so. 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  167 

5.  ENGAGEMENT  OF  EXPERTS. 

It  will  1)0  necessary,  in  order  to  secnre  the  proper  skill  in  manage- 
ment, and  esj)ecially  to  secure  confidence  on  the  part  of  business 
men,  both  Chinese  and  foreign,  that  a  few  of  the  very  best  foreign 
experts  be  secured,  especially  for  a  few  j^ears  at  the  beginning  of  the 
system.  These  experts  would,  of  course,  be  under  the  Chinese  Gov- 
ernment. Their  fields  of  labor  would  be  rigidly  defined  in  their 
aj)pointments,  so  that  the  Chinese  (irovernment  would  take  no  risk 
of  their  usurping  power  unduly;  but  within  the  field  of  work  as- 
signed them  they  would  need  to  have  much  discretion  left  them, 
inasuuich  as  the  work  is  ver}'  difficult  and  almost  from  day  to  day 
must  be  adapted  to  the  changing  needs.  Foreign  governments  con- 
sider the  establishment  of  their  monetary  system  one  of  their  most 
difficult  problems. 

The  experts  chiefl}'  needed  at  first  would  be  a  controller  in  general 
charge  of  the  whole  system,  Avhose  business  it  should,  be  to  plan  out 
the  details  of  the  work  and  the  new  laws  needed,  the  putting  of  those 
laws  into  force,  the  direction  of  the  general  organization  of  the 
sj^stem,  and  its  gradual  introduction  throughout  the  country,  and  the 
direction  of  its  management.  He  should  nominate  to  the  Govern- 
ment for  its  appointment  (a)  a  general  superintendent  of  all  of  the 
mints.  This  man  should  be  thoroughly  acquainted  with  all  foreign 
methods  of  mint  management  and  be  well  known,  so  that  his  name 
would  be  a  guaranty  to  everyone  of  the  absolute  honesty  of  both 
weight  and  touch  of  the  new  coins,  and  should  also  be  a  guaranty 
to  the  Government  that  the  work  was  being  done  at  the  lowest 
possible  cost. 

(b)  An  accountant  or  statistician. — It  is  necessary  that  all  the 
mints  and  different  agencies  for  the  introduction  of  the  sj'stem 
should  keep  their  books  in  harmony,  so  that  from  month  to  month — 
almost  from  day  to  day — the  controller  can  learn  the  exact  con- 
dition of  the  mints  as  regards  supply,  the  rate  of  exchange,  the 
amount  of  money,  silver,  etc.,  on  hand  in  each  of  the  agencies  for 
the  introduction  of  the  money  throughout  the  country,  the  condition 
of  the  national  bank,  and  its  reserve,  etc.  The  accountant,  there- 
fore, must  have  authority  to  collect  this  information  from  the 
various  sources,  and  to  compel  them  to  keep  their  books  in  the  ways 
which  he  prescribes.  Pie  should  be  the  mediiun  through  whom  the 
infornuition  needed  by  the  controller  should  be  gathered,  and  he 
.should  jjublish  reports  regularly. 

{c)  The  national  bank  should  be  organized  under  a  special  law 
prescribing  strictly  its  poAvers  and  duties,  so  that  the  Government 
would  be  protected  absolutely  as  long  as  the  law  was  observed. 
Still  further,  the  controller,  a  government  official,  would  be  ex  officio 
a  director  of  the  bank,  so  that  he  should  know  the  conditions  and 
details  of  the  management  of  the  bank.  The  Government  should 
also  appoint  auditors  and  inspectors  to  see  that  the  bank  kept  within 
the  law.  The  chief  foreign  manager  of  the  bank  should  probably  be 
selected  by  the  board  of  directors  elected  b}'  the  stockholders,  but  his 
election  should  be  ajDproved  by  the  Government  on  the  recommenda- 
tion of  the  controller.  Inasmuch  as  the  bank  has  so  much  Govern- 
ment work  to  do,  and  inasmuch  as  it  must  be  run  in  harmony  with  the 
new  monetary  system,  it  is  necessary  that  its  manager  and  the  con- 


168  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

troller  work  in  the  closest  harmony.  Possil^ly  it  would  be  best  to 
have  the  manager  of  the  bank  appointed  by  the  Goveinment  on  the 
nomination  of  the  controller;  but  probably  the  way  first  suggested 
would  be  best. 

6.  CONTRACTS  WITH  EXPERTS. 

With  these  foreign  experts  the  Government  should  make  rigid  con- 
tracts, so  that  there  could  be  no  dispute  as  to  their  field  of  work,  and 
the  Government  should  in  those  fields  give  them  practically  full 
power.  They  should  not  be  allowed  to  exercise  authority  outside 
their  special  fields  of  work. 

It  would  be  well  for  the  Government  to  place  with  these  foreign 
experts,  who,  it  should  be  kept  in  mind,  are  skilled  workmen  and 
advisers  employed  by  the  Chinese  Government  and  not  in  any  sense  its 
dictators,  Chinese  who  are  willing  to  make  this  kind  of  work  their 
business,  and  who,  as  understudies,  will  know  all  the  work  of  the 
foreign  experts  and  will  assist  them  in  every  way  possible.  To  a 
considerable  extent,  in  connection  with  the  foreign  experts,  they  will 
take  charge  of  the  Chinese  subordinates  who  are  employed ;  but  care 
must  be  taken,  especially  during  the  first  years,  that  they  do  not 
hamper  the  work  of  the  experts. 

The  controller  should  also  start  a  training  school  to  run  for  some 
years  until  he  gets  a  good  numy  well-trained  young  Chinese  to  take 
positions  in  the  monetary  system  in  the  provinces. 

7.  RELATION  OF  FOREIGN  GOVERNMENTS. 

In  securing  these  experts  the  Government  should  not  in  any  way 
accept  the  dictation  of  any  foreign  government.  Men  should  be 
selected  for  their  knowledge  and  ability  to  do  their  work,  and  for 
this  only.  The  banker  should  doubtless  be  one  of  the  most  experi- 
enced and  ablest  foreign  bankers  who  have  done  business  in  the  East 
for  the  last  few  years  and  one  who  has  the  confidence  of  every  one. 
The  controller  should  be  a  man  who  knows  monetary  science  and 
monetary  systems  thoroughly,  who  has  had  experience  in  establish- 
ing and  administering  foreign  systems,  and  whose  reputation  will 
give  confidence  to  business  men,  Chinese  and  foreign.  The  same 
thing  should  be  said  in  their  respective  fields  with  reference  to  the 
superintendent  of  the  mints  and  of  the  accountant.  The  accountant 
should  be,  if  possible,  one  who  knows  the  Chinese  language  thor- 
oughly and  Chinese  ways  of  doing  business.  Presumably  the  cham- 
bers of  commerce  might  be  consulted  to  advantage  by  the  controller 
in  securing  the  names  of  two  or  three  of  the  leading  men  from  whom 
the  accountant  should  be  selected  by  the  monetary  commission.  Pre- 
sumably some  one  of  experience  in  the  Imperial  customs  service 
would  be  the  right  man,  although  possibly  some  one  of  experience  in 
private  business  might  be  better  equipj^ed. 

After  the  first  few  men  are  selected  there  will  be  little  difficulty 
in  getting  their  subordinates.  For  branch  banks,  etc.,  the  board  of 
directors,  with  their  manager,  would,  of  course,  control ;  for  the  more 
directly  subordinate  (Jovernment  positions  the  controller  would,  of 
course,  name  (nominate,  not  appoint)  the  men;  in  the  mints,  ])rac- 
tically  in  accordance  with  the  wishes  of  the  superintendent  of  the 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  169 

mints;  in  the  acconntino;  (loioartment,  at  the  suggestion  of  the  chief 
accountant,  and  so  on.  In  the  establishment  of  the  new  monetary 
system  in  various  places  the  inspectors  necessary  would,  of  course,  be 
more  directly  the  personal  subordinates  of  the  controller.  The  main 
difficulty  is  in  getting  the  right  start  with  the  right  men;  thereafter 
the  system  will  develoi)  easily. 

XVI.  GOVERNMENT  PROCEDURE. 

In  the  establishment  of  the  new^  monetary  system  it  is  important 
that  the  Chinese  (ioveriunent  arrange  soon  a  plan  for  its  general 
lines  of  work,  so  that  the  whole  system  may  be  developed  in  an 
orderly  manner  without  mistakes.  So  long  as  the  new  coins  are  not 
put  into  actual  circulation  there  will  be  relatively  little  harm  done 
by  a  delay  of  a  few  weeks,  or  even  of  a  few  months,  after  the  first 
steps  are  taken,  so  as  to  permit  the  definite  formulation  of  plans.  If 
the  new  coins  are  put  into  circulation  before  the  plans  are  practically 
all  worked  out.  it  may  do  great  harm,  since  there  will  be  great  diffi- 
culty in  making  any  changes  thereafter. 

The  following  indicates  the  chief  lines  of  activity  which  the  Gov- 
ern uient  must  follow  in  the  comparatively  near  future.  So  far  as 
possible  the  order  in  wdiich  action  should  be  taken  is  indicated. 

I.'THE  APPOINTMENT  OF  EXPERTS. 

(a)   The  Controller  of  the  Currency. 

Inasmuch  as  the  controller  of  the  currency  will  be  held  responsible 
1>V  the  Chinese  (Tovernment  for  the  success  of  the  systeui.  and 
inasnuich  as  it  will  expect  to  rely  to  a  considerable  extent  u}jon  his 
judgment  in  making  plans  for  the  organization  of  the  system,  his 
appointment  should  be  made  as  soon  as  the  Government  can  find  a 
satisfactor}'^  man.  This  is  equally  necessary  wdiether  the  tjystem 
starts  on  a  gold  or  on  a  silver  basis.  It  is  merely  good  business  policy 
to  put  the  responsibility  upon  some  one  individual  to  whom  the 
Government  can  apply  at  any  time  for  suggestions,  from  whom  it  can 
demand  reports,  and  with  whom  it  will  expect  to  counsel  regularly 
regarding  the  development  of  the  system.  No  other  plan  would  be 
in  accordance  with  good  practical  business  methods. 

Inasmuch  as  he  is  to  be  held  responsible  for  the  successful  and 
harmonious  working  of  the  system,  the  other  chief  officials  to  be 
appointed  by  the  Government  should  have  their  names  suggested  to 
the  Government  by  the  controller.  In  that  way  only  can  it  be  cer- 
tain that  friction,  which  might  be  dangerous  to  the  success  of  the 
system,  will  be  avoided.  The  Government  should,  of  course,  indicate 
to  the  controller  certain  general  matters  in  connection  with  these 
appointments  if  it  wishes  to  do  so,  such  as  the  nationality  of  the 
appointee  which  would  be  preferable,  if  it  has  any  jireference,  the 
general  type  of  man  desired,  etc.  The  two  appointments  (aside 
from  a  secretary  or  an  assistant)  that  should  probably  be  made  first 
are: 

(6)   General  Superintendent  of  Mints. 

This  appointment  should  l)e  made  comparatively  soon,  inasmuch 
as  under  the  general  management  of  the  superintendent,  in  accord- 


170       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

ance  with  directions  issued  to  him  by  the  Government  through  the 
controller,  should  be  made  the  inspection  of  all  the  existing  provin- 
cial mints,  the  inventory  of  their  machinery,  so  as  to  bring  out  their 
capacity,  the  i)rofits  which  they  can  make,  etc. 

There  should  be  ascertained  also,  either  by  the  general  superintend- 
ent or  by  officials  acting  for  the  controller,  the  profits  which  have 
been  made  by  the  mints  of  late  years.  The  superintendent  should 
inquire  likewise  carefully  into  the  skill  and  trustworthiness  of  the 
present  managers  and  also  regarding  the  most  responsiljle  workmen. 
The  information  indicated  above  is  necessary  in  order  that  just  and 
satisfactory  arrangements  can  be  made  with  the  viceroys  for  the 
transference  of  their  mints  in  due  time,  and  for  the  satisfactory 
working  under  the  new  system  of  the  mints  when  they  are  once  taken 
over.  As  the  general  superintendent  of  mints  will  be  held  responsible 
for  every  ounce  of  silver  or  gold  placed  in  his  hands,  he  must  have 
a  voice  in  selecting  his  subordinates — so  far  as  is  possible  from  those 
now  working.  He  should  be  consulted  also  regarding  the  edicts  that 
will  need  to  be  jDassed  in  connection  with  the  work  of  the  mints. 

(c)  General  Accountant. 

It  is  not  necessary  that  this  appointment  should  be  made  immedi- 
ately, and  still  there  should  not  be  too  long  a  delay,  inasmuch  as  the 
accountant  should  prepare  beforehand,  on  consultation  with  thf 
controller,  so  as  to  be  sure  that  the  whole  system  is  understood  alike 
by  them  both,  his  plans  for  uniform  accounting  in  all  of  the  mints, 
his  forms  for  the  reports  on  public  business  of  the  national  bank, 
as  well  as  for  the  various  offices  for  the  distribution  of  the  coins,  etc., 
throughout  the  Empire.  He  will  need  also  to  have  furnished  him, 
as  the  basis  of  the  accounts  of  the  entire  system,  the  inventory  of  the 
material  in  the  existing  mints,  the  values  of  the  machinery,  mint 
buildings,  etc.  Such  preparation  before  the  actual  work  of  the  sys- 
tem begins  will  require  considerable  time. 

2.  CONTROLLER  TO  PREPARE  AND  SUBMIT  DRAFTS  OF  EDICTS. 

The  Government  should  instruct  the  controller  to  study  carefully 
with  the  superintendent  of  mints,  the  general  accountant,  and  others, 
then  to  prepare  and  submit  for  its  consideration  and  action,  as  soon 
as  it  can  be  satisfactorily  done,  drafts  of  edicts  on  the  following 
subjects: 

(a)  General  Currency  Law. 

A  general  currency  law,  which  shall  prescribe  in  outline  the  organi- 
zation of  the  system. 

(6)  Minting  Law. 

A  minting  law  giving  (1)  a  description  of  the  coins  to  be  issued; 
(2)  the  limit  of  variation  in  weight  and  fineness  of  the  coins  to  be 
issued;  (3)  regulations  regarding  inspection  of  coins,  purchase  of 
bullion,  the  issue  of  coins,  etc. 

(c)   Gold-Reserve  Law. 

An  edict  creating  a  gold-reserve  fund  and  establishing  general 
regulations  for  its  management. 


GOLD   STANDARD    IN    INTERNATIONAL   TRADE.  l7l 

(d)  Banking  Laws. 

(1)  A  law  for  the  establishment  of  a  national  bank.  (2)  A  law 
re^ulatint;  the  issno  of  bank  notes. 

These  edicts  shonld  be  drawn  with  the  greatest  care.  A  varia- 
tion of  one  deci<>rani  in  the  wei<>ht  assigned  to  the  gold  standard 
coin  would  make  a  difference  of  more  than  $'20,000,000  probably  in 
five  or  six  years. 

I(  is  not  necessary  that  all  of  these  edicts  be  passed  immediately, 
but  they  should  be  pre[)ared  by  the  controller  as  rapidly  as  they  are 
needed,  for  submission  to  the  monetary  commission  in  ample  time  for 
full  discussion  of  them  by  the  commission  with  the  controller  before 
they  need  to  be  issued. 

3.  REGULATIONS  REGARDING  LOANS. 

If  it  is  decided  to  make  a  loan  in  order  that  the  new  coins  may  be 
issued  with  a  fixed  value  in  terms  of  gold,  it  is  desirable  that  steps 
be  taken  soon  in  connection  with  that  matter,  (a)  The  question  of 
proi)er  security  for  the  loan  and  provision  for  the  payment  of  the 
interest  and  in  due  time  of  the  principal  should  be  considered,  (b) 
Negotiations  should  be  entered  into  to  secure  the  loan  on  the  best 
terms  by  securing  offers  from  various  parties  to  see  who  will  offer  the 
best  terms. 

4.  REGULATIONS  REGARDING  REVENUE. 

If  it  should  be  found  that  a  loan  is  not  necessary,  provisions  will 
still  need  to  be  made  very  soon  to  secure  the  revenue  re(|uisite  from  the 
beginning  either  for  the  proper  development  of  the  system  with  the 
coins  on  a  gold  value  or  for  the  rapid  accumulation  of  a  gold  reserve. 

5.  MODIFICATION  OF  TREATIES. 

Steps  should  be  taken  in  the  near  future  for  negotiating  amend- 
ments to  the  treaties  with  foreign  powers  so  far  as  they  are  neces- 
sary for  limiting  the  importation  of  foreign  silver  coins  and  bullion. 

These  measures  will  perhaps  not  be  needed  for  a  considerable  time, 
but  there  is  likely  to  be  much  delay  in  securing  the  consent  of  all  of 
the  treaty  powers,  and  when  it  does  become  necessary  to  limit  the 
importation  of  silver  coins  and  bullion,  it  would  be  a  great  misfor- 
tune if  that  step  could  not  be  taken  promptly. 

AVith  certain  powers  it  might  also  be  desirable  to  discuss  informally 
the  question  of  their  attitude  in  the  future  toward  taxation  on  busi- 
ness conducted  in  any  currencj^  excepting  the  new  currency.  For 
these  measui'es  a  monetary  expert  will  be  needed  with  the  Chinese 
treaty  commissioners. 

G.  ORGANIZATION  OF  NATIONAL  BANK. 

The  Government  should  also  instruct  the  controller  to  suggest  steps 
in  due  time  for  the  organization  of  a  national  bank  and  for  beginning 
business  with  it.  It  is  not  absolutely  necessary  that  the  bank  be 
started  at  any  fixed  time,  but  it  would  probably  save  some  money  to 
the  Government,  and  it  would  certainly  be  desirable,  if  it  is  practica- 
ble, for  the  bank  to  be  organized  so  as  to  begin  business  by  the  time 


172       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

that  the  new  coins  are  issued.  It  would,  of  course,  be  an  advantage 
if  the  bank  could  be  started  almost  immediately,  so  as  to  have  its 
buildings  ready,  its  corps  of  assistants  engaged  and  somewhat  accus- 
tomed to  their  work,  and  some  patronage  already  secured  for  the 
private  business  before  it  became  necessary  for  it  to  take  up  its  public 
business. 

In  suggesting  to  the  monetary  commission  the  draft  of  the  law  for 
the  establishment  of  a  national  bank,  the  controller  woukl,  of  course, 
suggest  methods  of  securing  capital,  organizing  the  bank,  etc..  and  he 
should  be  ex  officio  a  director  of  the  bank.  The  manager,  elected  pre- 
sumably by  the  directors,  should  be  subject  to  ajjproval  by  the  Gov- 
ernment on  his  name  being  referred  to  it  by  the  controller. 

It  will  be  noted  in  the  outline  above  that  the  entire  power  and  con- 
trol rests  with  the  Government,  but  that  an  organization  is  indi- 
cated so  that  it  can  receive  continually  from  the  controller,  and 
through  him  from  each  one  of  the  sul)ordinate  officials,  suggestions 
regarding  the  details  of  organization,  of  management,  of  appointment 
of  suitable  men,  etc.  The  Government  will,  of  course,  view  these  sug- 
gestions carefully,  and,  finally,  after  full  and  careful  discussion  with 
the  experts  appointed,  so  that  there  will  be  no  misunderstanding,  the 
Government  will  take  action.  So  far  as  possible  its  control  will  be 
largely  in  the  form  of  these  general  edicts  and  a  careful  inspection 
to  see  that  these  laws  are  rigidly  observed.  The  contracts  made  with 
the  experts  would,  of  course,  prescribe  strictly  their  powers  and  du- 
ties, and  they  must  confine  their  activities  to  those  fields.  Within 
those  fields  they  should  be  allowed  much  discretion. 

It  is  only  through  this  method  of  centralizing  responsibility  in  the 
controller  and  of  dealing  with  the  details  of  the  system  through  the 
heads  of  the  different  departments  and  eventually  through  the  subor- 
dinates, each  of  whom  is  to  be  held  strictly  responsible  by  his  imme- 
diate superior,  that  the  Government  can  secure  absolute  certainty  of 
results  and  absolute  confidence  on  the  part  of  the  public,  both  Chinese 
and  foreign. 

It  would  be  understood,  of  course,  from  the  beginning  that  the 
whole  system  is  to  be  managed  on  the  strictest  business  principles  and 
solely  in  the  interests  of  China. 

XVII.  SECOND  SUMMARY;  ANSWERS  TO  OBJECTIONS,  AND  FINAL 

SUGGESTIONS. 

1.  SUMMARY  OF  WORK  OF  EXPERT  ORGANIZER. 

The  Chinese  Government  needs  foreign  expert  help  of  the  nature 
suggested  in  our  previous  discussions,  substantially  as  much  if  it 
should  decide  to  issue  merely  a  silver  coinage  without  giving  that 
coinage  a  gold  value  as  if  it  attempted  to  establish  a  gold  system. 
The  difficulty  connected  Avith  foreign  experts,  therefore,  can  not  be 
avoided  by  rejection  of  the  American  plan,  and  in  addition  to  this 
consideration  its  rejection  means  also,  of  course,  the  loss  of  the  20 
per  cent  profit,  the  disadvantage  of  not  securing  a  stable  rate  of 
exchange  with  gold,  and  the  many  other  disadvantages  of  the  silver 
system  nienlioned.  Tlie  expert  will  be  needed  on  tlie  silver  basis  for 
the  following  reasons: 

(a)  To  fix  the  ratio  to  the  tael  at  which  the  Government  will  ac- 
cept the  new  coins  in  various  parts  of  China  when  it  is  introduced. 


GOLD  STANDARD  TN  INTERNATIONAL  TRADE.       173 

(7>)  To  soo  that  tho  mints  turn  out  coins  of  standard  woioht  and 
quality,  and  to  ^ive  tho  people  confidence  in  them.  At  present  this 
is  not  universally  the  case  with  any  mint  in  China.  Objections  from 
business  men  have  been  heard  against  them  all. 

(c)  To  org^anize  and  mana<>:e  the  distribution  of  the  new  coins  and 
the  purchase  of  the  old  coins  and  of  bullion.  Unless  this  is  skillfully 
done  the  old  coins  will  remain  in  circulation  indefinitely  and  the  new 
coins  will  have  fjreat  difficulty  in  nuiking  their  way. 

(d)  He  should  advise  regardino-  Iravs  to  be  passed  discouraging 
the  circulation  of  old  coins  and  of  bullion. 

{e)  He  will  be  needed  in  the  arrangemei^t  of  treaties  permitting 
the  prohibition  of  importation  of  the  old  coins  and  of  bullion. 

(/■)  His  care  Avill  be  needed  in  the  detailed  arrangements  to  keep 
up  the  value  of  the  smaller  silver  and  copper  coins. 

{(/)  The  coinage  of  the  present  copper  ten  cash  pieces  should  be 
stopped  very  soon.     He  should  be  consulted  regarding  that. 

(A)  He  should  make  estimates  regarding  the  taking  over  by  the 
board  of  revenue  of  the  provincial  mints. 

There  are  other  points  which  might  be  mentioned,  but  this  is 
enough  to  shoAV  that  an  expert  of  the  first  rank  is  needed  even  if 
the  gold  system  is  not  attempted. 

2.  DELAY  INADVISABLE. 

With  the  new  mint  approaching  completion,  part  of  the  machinery 
already  being  on  hand,  there  can  not  be  any  long  delay  in  reaching 
a  decision  without  considerable  loss  to  the  Government.  Neverthe- 
less it  would  be  far  better  to  delay  the  issue  of  the  new  coins  for  a 
year  or  more,  losing  the  interest  on  the  capital  in  the  mint,  than  to 
make  a  wrong  start  from  the  ill  effect  of  which  it  might  be  almost 
impossible  ever  to  recover. 

3.  OBJECTIONS  TO  SYSTEM  ANSWERED. 

No  objections  have  been  raised  to  the  gold  exchange  system  which 
have  not  been  satisfactorily  answered,  to  some  people  at  least  who 
have  taken  the  time  for  full  consideration.  In  a  few  words  are 
summed  up  below  some  of  the  most  important  objections  and  the  line 
of  answer.  There  is  no  doubt  that  all  objections  can  be  satisfactorily 
answered. 

(a)  People  too  Ignorant. 

It  is  said  that  the  Chinese  people  are  too  ignorant;  not  ready; 
can  not  imderstand  the  new  system. 

No  people  in  any  civilized  country  understand  the  details  of  the 
monetary  system;  it  is  not  necessary  that  they  should.  Most  peoi:>le 
send  telegrams  without  understanding  the  process;  they  ride  on  the 
railroads  without  knowing  how  to  run  an  engine;  they  take  bank 
notes,  knowing  nothing  of  the  reserve.  In  one  week  they  can  be 
taught  that  the  Government  will  take  the  new  coins  at  a  fixed  valua- 
tion; that  they  can  always  get  a  thousand  of  the  new  cash  for  the 
new  dollar,  or  a  new  dollar  for  a  thousand  of  the  new  cash,  and  that 
they  need  no  longer  be  dependent  upon  the  cash  shops  to  learn  the 


174       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

value  of  their  money.  This  alone  Avill  secure  the  hearty  support 
of  the  common  people,  and  it  is  not  really  necessary  that  they  under- 
stand more. 

The  merchants  and  l)usiness  men  with  whom  I  have  had  an  oppor- 
tunity of  discussing  the  matter  thoroughly  have  practically  all  sup- 
ported it  heartily.  The  one  or  two  exceptions  were  simply  in  doubt 
as  to  whether  it  were  not  better  to  keep  a  silver  system  Avith  its 
fluctuations.  I  am  convinced  that  those  who  favor  the  gambling 
risks  in  business  coming  from  the  fluctuating  rate  of  exchange  of  a 
silver  system  are  relatively  few. 

To  urge  that  China  m^ist  wait  until  her  people  are  educated  would 
seem  to  argue  simply  a  wish  to  avoid  responsibility. 

It  might  be  well  for  the  new  controller  to  visit  some  of  the  leading 
cities  before  the  system  is  introduced  and  explain  it  in  some  detail 
to  leading  business  men. 

(&)   China   Has   No   Gold. 

It  is  said  that  China  has  no  gold.  China'  can  buy  gold  as  easily 
as  she  can  buy  machinery.  Moreover,  it  is  as  cheap  for  her  to  buy 
gold  with  her  present  products  as  it  is  to  get  it  by  mining  or  in  any 
other  way. 

(c)   Foreigners  Will  Not  Receive  New  Coins  at  Gold  Value. 

It  is  said  that  foreigners  will  not  take  the  new  coins  in  the  settle- 
ment of  debt  oljligations.  The  new  coins  can  not  be  sent  abroad  at 
their  gold  value,  it  is  true,  but  the  new  coins  can  buy  at  their  gold 
value  bills  of  exchange  with  which  to  settle  the  foreign  debts,  and 
that  is  far  better  than  to  send  the  coins  themselves  abroad ;  in  fact, 
coins  are  not  sent  abroad  now. 

(ri)   System   Will  Benefit  Foreign  Nations. 

It  is  said  that  it  will  benefit  the  foreign  nations  at  the  expense  of 
China. 

Foreign  nations  are  benefited  only  in  .their  foreign  trade  with 
Cliina.  China  Avill  lierself  benefit  from  the  new  system  as  much  as 
all  the  foreign  nations  put  together,  for  her  trade  with  all  of  them  is 
equal  to  their  trade  Avith  her,  and  she  benefits  from  the  foreign  trade 
as  well  as  they  do.  The  Chinese  are  too  shrewd  to  do  business  in 
which  they  do  not  make  a  profit. 

Besides  China's  enormous  added  gain  from  a  good  system  in  her 
foreign  ti-ade,  her  domestic  trade  would  also  be  very  greatly  im- 
proved if  there  Avere  one  system  of  uniform  coins  of  fixed  value 
throughout  the  em})ire.  Moreover,  a  stimulus  to  foreign  trade  in 
itself  gives  a  great  stimulus  to  the  internal  trade.  Most  export  goods 
change  hands  more  than  once  in  the  interior.  Railroads  are  build- 
ing in  many  parts  of  China.  These  can  work  to  advantage  only  with 
a  fixed  money.  It  would  be  i)ra(;tically  impossil)le  to  use  taels  with 
a  lai-ge  trallic,  and  tliere  will  be  grave  disadvantages  to  the  Chinese 
people  until  th(;re  ai-e  fixed  gold  values.  Railroads  will  always  take 
advantage  of  the  fluctuations  in  exchange  at  the  expense  of  their 
patrons. 


GOLD    STANDAKD    IN    INTERNATIONAL    TRADE.  175 

(c)   China  Can  Not  Maintain  Value  of  Coins. 

It  is  said  thai  China  can  not  maintain  the  rro\d  A'ahie  of  her  coins. 
It  has  hoen  matle  clear  repeatedly  that  this  can  be  done  without 
difficulty. 

(f)  Will  Drive  Cash  Shops  Out  of  Business. 

It  is  urged  that  it  will  driA-e  the  cash  shops  and  others  out  of  busi- 
ness. It  is  doubtless  true  that  some  few  people,  es])ecially  kee})ers 
of  cash  shops,  will  be  injui-ed  in  their  business  by  the  new  system. 
That  will  be  e<]ually  as  true  with  a  good  uniform  silver  system  as 
with  gold.  It  is  inevital)le  that  a  few  suffer  from  any  industrial 
change.    Where  one  suffers  a  hundred  will  benefit. 

(g)  Extorters  Will  not  Gain  From  Rise  in  Gold. 

It  is  said  that  the  exporters  will  not  gain  if  there  comes  a  rise  in 
gold.  True.  Neither  Avill  they  lose  if  gold  falls.  It  takes  away 
the  gambling  element  from  business — a  most  desirable  thing. 

(h)  Foreign  Expert  Needed. 

It  would  require  foreign  expert  help,  and  some  object  to  that.  So 
will  the  new  silver  system,  and  in  any  case  it  has  been  made  clear  that 
the  foreigners  wovdd  be  here  as  skilled  w^orkmen  of  the  Government 
and  its  advisers,  but  not  in  any  sense  as  its  masters. 

Most  of  these  and  other  objections  are  due  either  to  a  misunder- 
standing of  the  system  or  to  the  fact  that  the  Chinese  edition  of 
the  earlier  pami)hlet  did  not  make  clear  the  plans.  The  more 
detailed  explanations  here  will  doubtless  clear  up  many  difficulties, 
and  further  details  can  easily  be  supplied. 

4.  AN  EXPERT  CAN  MODIFY  HIS  PLANS  TO  SUIT  SPECIAL  NEEDS. 

It  should  be  kept  in  mind,  also,  that  an  expert  who  knows  his  busi- 
ness fully  can  probably  modify,  more  or  less,  some  features  of  a  plan 
to  meet  special  objections  while  retaining  the  chief  points. 

It  will  be  recalled,  for  example,  that  several  modifications  of  the 
original  plan  were  suggested  so  that  China  could  start  a  system 
without  a  loan  by  raising  considerably  more  money  for  the  first  few 
years.  Other  modifications  could  be  made  Avith  reference  to  certain 
details  regarding  foreign-  experts,  or  with  reference  to  the  rapidity 
of  introduction,  etc.,  if  it  shoidd  be  necessary,  although  the  substan- 
tial features  of  the  plan. suggested  would  remain. 

5.  SUCCESS  SURE  IF  PLANS  ARE  WELL  MANAGED  AND  SUPPORTED. 

On  the  Chinese  Government,  of  course,  rests  the  responsibilty  of 
the  rejection  of  plans  which,  if  they  were  successful,  would  mean  a 
saving  of  very  many  millions  of  dollars  to  the  people,  besides  an 
added  i)rosperity  which  would  count  for  far  more  than  the  millions 
of  dollars  saved. 

To  that  Government,  on  the  other  hand,  would  come  also  chiefly  the 
satisfactioJJ  of  a  great  service  rendered  and  the  gratitude  of  the  peo- 


176  GOLD    STANDAED    IN    INTP:RNATI()NAL    TRADE. 

pie  for  many  generations  to  come  if  there  is  introduced  and  made 
successfnl  a  system  which  would  be  of  so  great  benefit. 

From  long  study  of  this  subject,  from  helping  establish  other  sys- 
tems, and  from  its  experience  in  seeing  similar  systems  at  work  in 
other  places,  the  American  Commission  counts  upon  the  full  success 
of  the  system  recommended,  if  it  is  well  managed  and  if  it  is  prop- 
erly supported  by  the  Chinese  Government. 


III.  COMMENTS  AND  SUGGESTIONS  ON  THE  CHINESE  MONETARY 

REFORM. 

I.  MEMORANDUM    ON    THE    ESTABLISHMENT  OF  A   GOLD-STAND- 
ARD CURRENCY  IN  CHINA. 

By  Alfred  E.  Hippisley,  Commissioner  of  the  Imperial  Maritime  Customs,  adviser 
to  Chinese  Treaty  Commissioners. 

Note. — The  loUowing  memorandum  was  drawn  up  in  compliance 
with  a  request  from  the  imperial  commissioners  for  treaty  revision. 
Their  excellencies  Lii  Hai-hwan  and  Slieng  Kung-pao,  for  an  ex- 
pression of  the  Avriter's  views  with  reference  to  the  suggestions  con- 
tained in  a  pamphlet,  "  Memoranda  on  a  New  Monetary  System  for 
China,"  presented  by  Prof.  J.  W.  Jenks,  the  commissioner  appointed 
by  the  United  States  Government  in  response  to  an  appeal  made  to 
it  in  January,  1903,  by  China  and  Mexico,  for  assistance  in  establish- 
ing a  monetary  system  which  should  determine  the  relations  between 
silver  and  gold.  As  the  views  of  a  layman  on  the  technical  points 
involved  in  such  a  proposition  would  be  of  little  worth,  the  writer 
confines  himself  to  an  ex])ression  of  opinion  as  to  the  manner  in  which 
the  Government  and  the  people  of  China  are  likely  to  be  affected  by 
the  establishment  of  a  gold-standard  monetary  system. 

On  January  '22,  1903,  the  Chinese  charge  d'affaires  at  Washington 
addressed  an  official  request  to  the  United  States  Government  to  use 
its  influence  in  establishing  an  equilibrium  between  gold  and  silver. 
He  said : 

"  The  serious  results  which  are  threatened  by  the  recent  fluctua- 
tions in  the  value  of  silver  bullion  to  the  commerce  both  of  gold  and 
silver-standard  countries  have  induced  the  Chinese  Imperial  Gov- 
ernment, acting  in  consent  with  the  Mexican  Government,  to  ask  the 
cooperation  of  the  United  States  in  seeking  a  remedy  for  these  con- 
ditions for  the  mutual  benefit  of  all  conceded.  Safe  and  profitable 
trade  between  any  two  countries  is  dependent  to  a  considerable  degree 
upon  relative  si  ability  in  the  value  of  their  currencies.  This  stability 
is  destroyed  in  the  trade  between  a  gold-standard  country  like  the 
United  States  and  a  silver  country  like  China,  when  the  variations  in 
the  gold  value  of  silver,  as  v;as  the  case  in  the  year  1902,  reached 
nearly  10  cents  an  ounce  in  gold  in  a  single  year,  or  nearly  20  per  cent 
upon  the  price  of  silver  bullion.     *     *     * 

"  It  is  not  the  expectation  nor  the  wish  of  the  Chinese  Government 
that  the  gold  standard  countries  should  take  any  action  tending  to 
impair  their  own  monetary  standards  or  to  make  material  changes  in 
their  monetary  systems.     It  is  desired  that  the  govenunents  of  gold 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       177 

comitrios  liavinii;  depoiuloncios  -vvherc'  silver  is  used  and  the  govern- 
iiHMils  of  silver-usina"  countries  shall  cooperate  in  forniulatinof  some 
]>lan  for  establishiuii-  a  dehnite  relationship  between  their  gold  and 
silver  moneys,  and  shall  take  proper  measures  to  maintain  such  rela- 
tionship. One  such  ])lan,  it  is  reported,  has  already  been  proposed  in 
both  Houses  of  the  Omgress  of  the  United  States^  with  reference  to 
the  Philii)pine  Islands.  It  is  this,  and  other  plans  designed  to  accom- 
))lish  the  same  end,  which  the  Government  of  China  would  be  glad  to 
luive  considered  by  the  United  States  and  other  governments,  with  a 
view  to  the  adoption  of  the  best  attainable  monetary  arrangement  by 
those  countries  Avhich  are  not  prepared  under  existing  conditions  to 
adopt  a  currency  system  involving  the  general  use  of  gold  coins. 
The  cooperation  of  the  United  States  with  the  Chinese  Imperial 
Government  and  with  the  Republic  of  Mexico  in  presenting  this  sub- 
ject to  other  governments  would,  in  the  opinion  of  this  Government, 
aid  greatly  in  securing  a  prompt  and  satisfactory  solution  of  an 
enormous  problem  which  threatens  the  ruin  of  the  silver-using  coun- 
tries on  the  one  hand  in  the  vain  effort  to  meet  increasing  goldobliga- 
tions  abroad,  and  Avhich  threatens  also  the  conunercial  prosperity  of 
the  gold-using  countries  ])y  destroying  the  purchasing  powers  of 
their  customers." 

MEANING    or   china's   REQUEST   TO   THE   UNITED    STATES. 

This  was  practically  a  request  from  the  Government  of  China  to 
the  United  States  to  devise  a  new  monetary  system  which  Avould  estab- 
lish a  fixed  rate  of  exchange  between  China  and  gold-standard  coun- 
tries; because  if  China  made  no  change  in  her  system  the  existing 
evils  resulting  from  constant  fluctuations  in  exchange  between  gold 
and  silver  detailed  by  the  Chinese  charge  d'affaires  would  continue, 
even  if  they  were  not  accentuated  by  action  taken  by  other  countries 
with  a  view  to  fix  the  rate  of  exchange  between  their  coins  and  the 
gold  standards  of  the  West.  It  thus  involved  two  things — first,  the 
adoption  of  a  uniform  national  currency,  a  step  Avhich  it  had  already 
been  promised  should  be  taken  in  the  new  treaty  with  England;  and, 
second,  the  establishment  of  a  definite  relationship  betAveen  that  cur- 
rency and  gold,  but  in  such  a  manner  as  Avould  not  involve  the  general 
use  of  gold  coins,  which,  indeed,  are  unsuited  to  the  conditions  exist- 
ing in  China. 

CAN   NEW  COINAGE  UAVE  A  FIXED  GOLD  VALUE? 

In  consequence  of  this  request  the  United  States  Government 
appointed  a  commission  of  three  experts  to  consult  the  financial 
authorities  of  the  different  countries  of  Europe  and  then  to  frame 
suggestions  with  a  view  to  the  establishment  of  a  gold-standard  cur- 
rency in  China.  One  of  these  experts  Avas  Mr.  Jenks,  Avho  had 
already  been  deputed  to  Adsit  India  and  the  Dutch  colonies  in  Asia, 
Avhere  a  gold-standard  currency  had  already  been  established,  Avith 
a  vieAv  to  the  introduction  of  a  similar  monetary  system  in  the 
Philippines;  and  as  he  Avas  proceeding  to  those  islands  again  to 
superintend  the  carrying  out  of  this  policA'  he  Avas  deputed  to  pro- 
ceed to  China  in  order  to  submit  to  the  Government  of  that  country 
S.  Doc.  128,  58-3 l:i 


178       GOLD  STANDARD  IN  INTERNATIONAL  TRADE, 

such  proposals  as  seemed  best  calculated  to  attain  the  object  in  view. 
The  financial  experts  of  Europe  were  unanimously  of  opinion  that  a 
national  currenc}^  should  be  at  once  established  in  China,  and  that  the 
coin  used  should,  so  soon  as  possible,  be  given  a  fixed  gold  value ;  but 
they  differed  as  to  the  meaning  of  the  words  "  so  soon  as  possible." 

Six  out  of  the  eight  countries  consulted,  including  the  United 
States,  German_y,  Japan,  and  Mexico,  considered  that  the  two  steps 
should  be  taken  simultaneously  and  that  the  silver  coin  adoj^ted  by 
China  should  from  the  outset  be  given  and  l)e  maintained  at  a  fixed 
gold  value,  England  and  Russia,  on  the  other  hand,  believed  that 
China  is  too  conservative  to  introduce  a  luiiform  currency  and  at  the 
same  time  to  take  the  steps  necessary  to  maintain  a  fixed  gold  value 
for  the  coin  adopted ;  they  therefore  considered  it  would  be  best  to 
start  with  the  introduction  of  a  national  silver  currency,  and  then, 
later  on,  but  so  soon  as  possible,  to  give  the  silver  coin  adopted  a 
fixed  gold  value.  But  the  member  of  the  original  Commission  who 
Avas  deputed  to  continue  the  investigations  in  Asia  and  to  submit 
proposals  to  the  Chinese  Government,  Mr.  Jenks,  has  been  satisfied 
by  his  investigations  into  what  has  been  done  in  India,  and  by  his 
experience  in  assisting  to  introduce  into  the  Philippines  a  silver 
currency  on  a  gold  basis,  that  it  is  possible  even  in  China  to  take  the 
two  steps  simidtaneously,  if  China  decided  to  do  so — to  from  the 
outset  fix  a  gold  value  to  the  silver  coin  adopted,  and  by  this  means 
to  put  a  stop  to  the  increasing  fall  in  China  of  the  gold  value  of 
silver.  If  such  action  be  possible,  there  can  be  no  question  that  from 
a  financial  point  of  view  it  would  be  to  China's  advantage  to  take  it. 

UNIT  or  NEW  COINAGE. 

In  introducing  the  new  national  silver  coinage  the  first  step  for 
China  to  take  is  to  decide  upon  the  unit  of  the  coinage,  whether  it 
shall  be  a  dollar  or  a  tael.  It  is  suggested  that  a  silver  dollar  is 
already  a  sufficiently  large  coin,  and  that  a  tael,  no  matter  what 
denomination  of  tael  might  be  selected,  would  be  too  heaA^y  and  cum- 
bersome. Moreover,  mints  have  been  established  in  several  of  the 
provinces,  and  these  have  turned  out  dollars  and  fractions  of  dollars 
that,  in  the  aggregate,  amount  to  several  tens  of  millions  of  dollars. 
To  retain  the  dollar  as  the  unit  would  have  several  distinct  advantages. 
First,  in  so  large  a  country  as  China  it  will  be  necessary  to  continue 
to  employ  several  mints,  and  those  already  established  can  continue 
to  be  utilized  for  coinage  purposes  with  only  a  slight  modification  of 
the  device  on  the  coin,  and  thus  considerable  expense,  which  would  be 
entailed  by  the  purchase  of  the  lieavier  machinery  required  to  mint  a 
tael  coin,  will  be  avoided.  Second,  the  people  being  already  accus- 
tomed to  the  use  of  dollars,  a  large  step  has  already  been  taken  toward 
the  establishment  of  a  uniform  currenc}'.  Third,  if  the  value  of  the 
unit  be  fixed  in  cash,  it  is  believed  that  the  jnany  kinds  of  taels  used 
in  different  localities,  not  being  coins  but  merely  a  weight  of  silver  of 
varying  fineness,  would  gradually  disapj^ear  before  the  new  coin. 

If  that  coin  were  made  a  tael,  money  changers  would  unduly  depre- 
ciate the  value  of  the  dollars  already  in  use,  to  the  sei-ious  loss  of  the. 
people.  If,  on  the  other  hand,  the  coin  Avere  made  a  dollar,  those 
already  issued  should  be  accepted  during  a  limited  period  by  the 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.        l79 

Govorninent — and  this  should  be  published  everywhere  by  proclama- 
tion— at  a  price  somewhat  above  the  market  vahie,  and  thus  holders 
of  the  old  coin  would  sufl'er  no  loss;  the  latter  beino;,  of  <'oui-se,  whh- 
drawn  from  circulation  and  melted  down.  If,  then,  it  be  decided  to 
adopt  the  dollar  as  the  new  unit,  it  i>s  proposed  that  $1  shall  be  e(|iuil 
to  1,000  cash;  $0.50  shall  be  wpuil  to  500  cash;  $0.20  shall  be  equal  to 
200  cash;  $0.10  shall  be  equal  to  100  cash;  $0.05  shall  be  equal  to  50 
cash ;  that  the  10-cash  piece  now  being  coined  be  continued  and  bear 
the  words  now  borne  by  those  minted  at  Canton,  namely:  "  One  hini- 
dred  e(iual  one  dollar,"  and  that  a  new  1-cash  coin  be  struck.  Then  1 
treasury  tael  might  be  held  equal  to  1,400  cash;  1  Haikwan  tael  might 
be  held  equal  to  1,500  cash,  and  other  taels  might  be  converted  into 
the  new  currency  at  corresponding  rates. 

This  system,  if  adopted,  w  ould  be  a  great  boon  to  the  people  gener- 
ally, merchants  and  agricidturists  alike:  because,  as  one  of  the  princi- 
ples of  a  national  coinage  is  that  the  Government  must  always  accept 
their  own  coins  at  the  value  it  affixes  to  them,  the  people  would  always 
know  exactly  what  silver  coins  or  what  copper  coins  they  had  to  ten- 
der in  payment  of  taxes  due.  There  would  no  longer  be  any  room  for 
discussion  as  to  how'  many  cash  represent  a  tael. 

If  China  takes  the  second  step  and  bases  the  new  currency  on  a  gold 
standard,  it  remains  to  decide  how  manj^  grains  of  gold  should  repre- 
sent a  gold  dollar — and  that  is  a  matter  for  experts.  Supposing  they^ 
decide  that  the  silver  dollar  shall  represent  a  gold  value  equivalent 
to  2  English  shillings,  then  the  Haikwan  tael  would  represent  3 
shillings. 

IS   CHINA   IN    FACT   A    SILVER-STANDARD    COUNTRY? 

But  it  may  be  asked,  "  If  this  proposal  were  adopted,  would  not 
China  lose  the  commercial  advantages  she  appears  now  to  possess  as  a 
silver-standard  country ;  and  would  not  the  effect  of  such  action  be,  on 
the  one  hand,  to  cheapen  the  laying-down  cost  of  foreign  goods  in 
China  and  so  promote  their  consumption  to  the  detriment  of  native 
manufacturers;  and,  on  the  other  hand,  by  increasing  the  laying-down 
cost  of  luitive  goods  in  foreign  countries,  to  restrict  the  consumption 
abroad  of  such  goods?  "  Before  proceeding  to  consider  what  effect 
the  adoption  of  a  gold-standard  currency  by  China  is  likely  to  exercise 
upon  her  foreign  trade,  it  may  be  well  to  pause  and  examine  whether 
China  can  with  propriety  be  described  as  a  silver-standard  country. 
It  is  submitted  that  this  is  a  misnomer.  It  is  true  that  the  Govern- 
ment statements  of  revenue  are  usually  expressed  in  taels — that  is,  in 
silver — and  in  large  commercial  transactions  the  consideration  for 
which  the  goods  are  passed  is  also  expressed  in  taels.  But  as  a  matter 
of  fact  the  Aast  majority  of  the  population  seldom  see  silver.  In  the 
interior  the  bulk  of  the  revenue,  especially  the  land  tax  and  salt  taxes, 
are  collected  in  copper  cash,  and  it  is  in  copper  cash  that  ])rices  are 
expressed  and  purchases  are  made.  The  real  standard  of  value  in 
China  is  the  coin  knoAvn  as  cash;  i,  e.,  copper,  and  not  silver.  And 
this  fact  has  a  very  important  bearing  upon  the  development  of 
China's  export  trade. 

As  a  rule  one  large  mercantile  transaction  entered  into  by  a  Chinese 
merchant  with  a  foreign  merchant  is  the  result  of  a  number  of  minor 
transactions  entered  into  bv  the  former  with  cultivators  or  traders 


180       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

in  the  interior.  The  tea  which  is  sold  as  one  crop  to  the  foreign  mer- 
chant has  been  collected  from  several  gardens  l)elonging  to  different 
owners,  and  the  thousand  piculs  of  hides  sold  to  the  foreign  merchant 
represent  many  ])urchases  from  a  large  number  of  dealers.  The 
Chinese  middleman  pays  the  cultivator  or  the  dealer  for  his  pur- 
chases in  cash,  and  the  important  matter  to  both  is  not  how  many 
taels  the  former  realizes  from  the  transaction,  but  how  many  tiao,  i.  e., 
thousands  of  copper  cash:  because  that  is  the  factor  which  will  deter- 
mine how  many  cash  he  can  afford  to  pay  next  season  for  his  tea  or 
hides.  Now,  during  the  last  thirty  years  silver  has  depreciated,  not 
only  in  terras  of  gold,  but  also  in  terms  of  copper  cash.  The  numl^er 
of  the  latter  for  which  a  tael  or  a  dollar  will  exchange  has  been 
steadily  falling.  In  1874,  1  tael  of  Shanghai  currency  exchanged  for 
1,630  cash;  to-day  it  exchanges  for  only  1,100.  In  the  interior  the 
dej^reciation  of  silver  in  terms  of  copper  is  even  more  marked,  but 
to  avoid  exaggeration  we  will  adopt  Shanghai  quotations.  Then  the 
HaikAvan  tael  exchanged  in  1892  for  1,5G0  cash,  and  in  1903  for  1,280 
cash. 

The  value  of  the  foreign  export  trade  of  China,  which  was 
102,580,000  taels  in  1892,  rose  to  21-1,350,000  taels  in  1903.  Expressed 
in  copper  cash,  it  rose  from  160,890,000  tiao  to  274,360,000  tiao.  In 
other  Avords,  while  the  increase  in  value,  if  expressed  in  silver, 
amounted  to  108  per  cent,  it  amounted  to  only  70  per  cent  when 
expressed  in  copper;  and  as  the  depreciation  of  silver  in  terms  of 
copper  began  some  years  later,  so  now"  it  is  proceeding  more  rapidly 
than  that  in  terms  of  gold,  having  during  the  last  two  years  shown  a 
percentage  of  decline  more  than  twice  as  large  as  that  shown  by  the 
latter.  Hoav  much  further  it  is  likely  to  proceed  can  not  be  definitely 
stated,  but  the  depreciation  of  silver  in  terms  of  copper  Avhich  has 
already  taken  place  and  the  rate  at  Avhich  it  is  still  progressing  show 
that  it  AYoidd  be  unAvise  to  attach  any  great  importance  to  the  idea 
that  China  is  a  sih'er-standarcl  country  or  to  gauge  the  profit  she 
derives  from  her  foreign  export  trade  by  the  increase  of  its  value  in 
terms  of  silver. 

It  is  necessary  to  bear  this  point  in  mind  Avhile  Ave  proceed  to  con- 
sider Avhether  the  adoption  of  a  gold  standard  Avould  adversely  affect 
China's  foreign  trade. 

WOULD    (JIVING     NEAV    COINS    A    FIXED    GOLD    VALUE    ADVERSELY    AFFECT 


CHINA  S    FOREIGN    TRADE 


First,  as  regards  imports  of  foreign  goods  into  China.  A  table 
has  been  compiled  (Appendix  No.  1)  shoAving  the  net  value,  both  in 
sih^er  and  in  gold,  of  the  imports  received  anmuilly  from  abroad 
during  the  last  thirteen  years,  1891-1903,  and  the  average  gold  value 
of  the  IlailvAvan  tael  in  each  of  those  years. 

Examination  of  this  tal)k*  shows: 

1.  'IMiat  the  silver  value  of  tiiis  trade  has  steadily  increased  year  by 
vear — Avith  the  exception  of  the  year  1900 — and  has  risen  from  134 
"million  taels  in  1891  to  326,740,000  taels  in  1903,  or  slightly  over  140 
per  cent. 

2.  That  the  gold  value  of  the  HaikAvan  tael.  thougli  there  liaA^e 
been  ups  and  doAvns  in  the  course  of  the  thirteen  years,  shoAvs  at  first 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  181 

a  rapid  and  then  a  fairly  steady  docliiR',  the  value  having  been  4s.  lid. 
in  181)1,  and  only  2s.  Tfjd.  in  V.m,  a  I'all  of  -[(rl  per  cent. 

3.  That,  as  a  consequence  of  this  fall  in  the  gold  vahie  of  the  tael, 
the  gold  value  of  this  trade  has  increased  from  £32,930,000  to  only 
£39,030,000,  or  20  per  cent :  and 

4.  That  it  is  not  exchange  that  determines  what  quantity  of  for- 
eign goods  China  will  ])ur('hase.  In  other  words,  the  table  shows 
that  China  does  not  take  a  larger  (piantity  of  foreign  goods  when 
-exchange  rises  and  a  smaller  ({iiantity  when  exchange  falls.  Thus  it 
will  be  seen,  that  she  took  aoods  of  practically  the  same  gold  value  in 
the  years  1891  (£32,930,000)  and  1900  (£32,7(;0,000),  though  exchange 
was  4s.  lid.  in  the  formei"  and  only  3s.  l^cl.  in  the  latter  year.  So, 
too,  she  took  goods  of  practically  the  same  gold  value  in  the  years 
1899  (£39,880,000)  and  1903  (£39,()30.000),  though  exchange  was 
3s.  OJd.  in  the  former  and  only  2s.  7§d.  in  the  later  year,  and  in  1902, 
when  exchange  touched  its  loAvest  point  and  averaged  for  the  year 
only  2s.  T|d.,  she  took  foreign  goods  representing  a  gold  value  of 
£41,000,000 — the  highest  value  in  the  thirteen  years — or  nearly  25  per 
cent  more  in  gold  than  she  took  in  1891  (£32,930,000),  when  exchange 
was  at  its  highest  point  during  the  thirteen  years— 4s.  lid. 

This  seems  to  show  conclusively  that  there  is  no  reason  to  appre- 
hend that  an  increased  consumption  of  foreign  goods  to  the  detri- 
ment of  native  manufactures  will  result  from  giving  to  the  new 
currency  a  fixed  gold  value.  The  figures  in  Addendum  No.  1  would 
seem  to  suggest  that  China  has  a  certain  sum,  averaging  roughly 
£33,000,000  per  annum — though  where  exactly  she  derives  that  sum 
we  are  unable  to  state — for  investment  in  foreign  goods,  and  that  she 
so  invests  it  year  after  year  without  regard  to  the  rate  of  exchange 
ruling.  If  that  be  so,  the  Chinese  people  will  still  continue  to 
expend  about  the  same  amount  in  gold  annually,  but  they  will 
receive  a  larger  quantity  of  yarn,  kerosene,  and  sugar,  the  articles 
which  show  the  largest  increases  during  the  period  in  question,  or  of 
rice  in  periods  of  famine — an  advantage,  not  a  loss,  to  the  country. 

Next,  as  regards  native  exports  to  foreign  countries.  Addendum 
No.  2  shows  the  value,  both  in  silver  and  in  gold,  of  the  native  goods 
exported  abroad  annually  during  the  last  thirteen  years,  1891-1903, 
and  the  average  gold  value  of  the  Haikwan  tael  in  each  of  those 
years.  Examination  of  this  table  discloses  practically  the  same 
results  as  does  examination  of  Addendum  No.  1.     It  shows — 

1.  That  while  the  silver  value  of  the  trade  has  been  subject  to 
many  fliu-tuations,  it  has  increased  from  100,950,000  taels  in  1891, 
to  2i4.350,000  taels  in  1903,  or  over  114  per  cent. 

2.  That  the  gold  \'alue  has  only  increased  14  per  cent,  from  £24,- 
820,000  to  £28,280,000. 

3.  That  it  is  not  exchange  that  determines  what  amount  in  gold 
foreign  countries  invest  in  Chinese  produce,  for  the  gold  value  of 
exports  abroad  was  practically  on  a  level  in  the  years  1891,  1897,  and 
1900— £24,820,000,  £24,350,000,  and  £24,(180,000,  respectively— 
though  the  rates  of  exchange  in  those  years  were  4s.  lid..,  2s.  ll|d., 
and  3s.  l^d.,  respectively,  the  average  value  for  the  entire  period 
being  £24,510,000. 

It  is,  however,  a  generally  accepted  axiom  that  it  is  wise  policy  to 
promote  the  cheapening  of  the  la^ing-dowii  coat  iu  foreign  countries 


182       GOLD  STANDARD  IN  INTP:RNATI0NAL  TRADE. 

of  native  products,  because  the  cheaper  they  can  be  placed  on  the 
market -tlie  more  effectively  can  they  compete  with  similar  products 
from  other  countries. 

Hence  all  nations  do  their  utmost  to  develop  the  means  of  internal 
transport,  few  levy  export  duties,  and  some  even  go  so  far  as  to 
encourage  export  by  means  of  bounties.  From  this  point  of  view 
the  proposal  to  establish  the  new  currency  in  China  upon  a  gold 
basis  would  at  first  sight  appear  to  be  an  economical  mistake, 
because  if  silver  continues  to  fall  the  effect  of  the  proposal  to  estab- 
lish the  dollar  on  a  parity  of  2  shillings  would  be  to  raise  the  laying- 
down  cost  in  foreign  countries  of  Chinese  products  somewhat  above 
what  that  cost  would  be  but  for  the  adoption  of  this  proposal.  And 
it  was  for  this  very  reason  that  when  the  government  of  India  ini- 
tiated the  policy  of  placing  the  currency  of  that  country  on  a  gold 
basis  that  policy  was  strenuously  oj^posed  by  some  of  the  greatest 
financial  authorities  in  England,  who  prophesied  that  it  would  ruin 
the  export  trade  of  the  country  and  bring  distress  to  its  people.  The 
course  of  trade  subsequent  to  the  date  at  which  this  legislation  took 
effect  would,  however,  appear  to  show  that  the  apprehensions  of 
these  distinguished  critics  were  ill-founded,  and  that  instead  of  fall- 
ing off  the  export  trade  of  British  India  has  been  marked  by  healthy 
expansion. 

The  Indian  government  took  the  first  step  toward  placing  its  cur- 
rency on  a  gold  basis  (at  the  rate  of  15  rupees  =  £1)  in  1893  by  clos- 
ing the  mints  to  the  free  coinage  of  silver.  It  was  not,  however,  till 
1890  that  the  effect  of  this  measure  began  to  make  itself  felt,  and  in 
the  following  year  the  parity  of  exchange  aimed  at  had  been  practi- 
cally attained.  In  Addendum  No.  3  are  given  statistics  of  the  foreign 
trade  of  India  from  the  year  1888-89  to  the  year  1902-3.  From  them 
it  will  be  seen  that  while  the  average  annual  value  of  the  export  trade 
of  India  during  the  five  years  prior  to  1896-97  (when  the  rupee 
passed  at  its  market  value)  was  1,079  millions  of  rupees,  the  average 
annual  value  of  that  trade  during  the  five  years  following  1897-98 
(the  period  of  gold  standard)  has  amounted  to  1,189  millions  of 
rupees. 

The  effect  of  the  adoption  of  a  gold  standard  in  Japan  has  been 
precisely  the  same.  Japan  adopted  a  gold  standard  in  1897,  and  the 
average  annual  value  of  the  export  trade  during  the  six  years  prior 
to  that  year  amounted  to  105  millions  of  yen,  while  the  average 
annual  value  during  the  six  years  following  1897  amounted  to  no  less 
than  231  millions  of  yen  (vide  Addendum  No.  4). 

IF   IT  DOES   NOT,   IIOW   RECONCILE   THIS   FACT   WITH   THEORY   THAT   IT   IS 
WISE  POLICY  TO  REDUCE  PRICE  OF  SHIPMENT  OF  NATIVE  PRODUCTS? 

The  question  naturally  arises:  "  Seeing  that  the  effect  of  placing  a 
silver  currency  on  a  gold  basis  is,  in  a  falling  silver  market,  to  give  the 
silver  coin  a  value  higher  than  that  of  the  metal  it  contains,  and  conse- 
quently to  raise  the  ])rice  abroad  of  the  product  of  the  country  con- 
cerned, how  is  it  possible  to  reconcile  expansion  of  the  export  trade 
following  on  the  adoption  of  a  gold  standard  currency  with  the 
theory  that  it  is  economically  advantageous  to  cheapen  the  laying- 
down  cost  of  a  couutrv's  exports?" 


GOLD   STANDARD    IN    INTERNATIONAL   TRADE.  183 

The  explanation  appears  to  bo  that  thon«;li  a  silver  currency  has 
the  advantaoo  of  enablino;  oxi)orts  to  bo  laid  down  in  gold-standard 
countries  at  a  k)\vor  cost  when  silver  is  I'allino-  in  price  than  similar 
j)roducts  from  gold-standard  countries  can  be  laid  down  at,  that  ad- 
vantage is,  as  a  fact,  far  more  than  counterbalanced  by  the  instability 
M'hich  is  incidental  to  a  silver  currency.  The  sudden  and  violent 
fillet  nations  of  value  which  have  characterized  the  silver  market  dur- 
ing i-ocont  years  have  tended  to  convert  legitimate  trade  into  little 
else  than  a  gamble.  Tlie  most  careful  caU-ulations  of  a  merchant  are 
upset  without  warning  by  a  cause  over  which  he  has  no  control;  and 
the  ])ruchMit  man,  rather  than  run  the  risk  of  a  disastrous  loss,  deems  it 
wiser  to  sit  still  and  wait  until  the  causes  which  are  so  violently  dis- 
turbing the  silver  market  have  passed,  with  the  result  that  the  devel- 
oi)mont  of  trade  is  seriously  retarded  or  brought  entirely  to  a 
standstill. 

If  ho  does  continue  his  business,  then  he  must  raise  the  price  asked 
for  foreign  imports  and  lower  the  price  to  be  given  for  native  exports 
in  order  to  cover  the  risk  of  a  fall  in  exchange,  and  in  consequence 
trade  must  be  restricted.  Take,  for  instance,  the  present  year.  T^lie 
value  of  the  Haikwan  tael  was  3s.  ^d.  in  February  and  2s.  7fd.  in 
April.  Suppose  a  merchant  invested  £10,000  in  tea  costing  15  taels  per 
picul"  in  February,  His  £10,000  would  realize  05,850  taels,  which 
would  purchase  1,300  piculs  of  tea.  Before  this  tea  can  reach  Europe 
Merchant  B,  taking  advantage  in  the  fall  in  exchano-e,  also  invests 
£10,000  in  April  in  similar  tea.  His  £10,000  realizes  75,590  taels, 
witli  which  he  purchases  5,039  piculs.  The  latter  ])urchase  having  been 
telegraphed  to  Europe,  the  price  of  this  tea  will  at  once  fall  there  and 
JVIerchant  A  will  not  be  able  to  dispose  of  his  tea  except  at  a  serious 
loss.  Again,  in  February,  exchange  then  ruling  at  3s.  £d.,  a  foreign 
merchant  calculates  that  he  can  sell  gray  shirtings  on  the  Shanghai 
markel  with  a  small  profit,  at  3  taels  i^er  piece,  and  he  enters  into  a 
contract  to  deliver  21,950  pieces  at  that  price.  He  delivers  the  goods 
in  April  and  receives  his  05,850  taels.  This  sum  represented  £10,000 
at  the  time  he  made  the  contract,  but  when  paid  to  him  it  will  only 
realize  £S,T11,  so  that  instead  of  the  profit  he  had  calculated  upon  he 
has  to  face  a  loss  of  £1,289,  or  close  on  13  per  cent. 

The  serious  character  of  the  impediments  placed  in  the  way  of 
legitimate  trade  by  the  constant  fluctuations  in  exchange  which  occur 
is  exemplified  by  the  following  statement  of  the  value  of  the  Haikwan 
tael,  month  by  month,  from  January,  1903,  to  April,  1904: 
190.3.  s.      d 


January 2  5 

February 2  4^ 

Marcli 2  4J 

April 2  ()4 

Miiy 2  8 

.June 2  7 

July 2  84 

August 2  104 

September 2  11 


s.  d. 

October 2  lOJ 

iXoveiiiber 2  8f 

December 2  8 


1!»()4. 

January 2  114 

February 3  | 

Marcb 2  8? 

April 2  73 


ADVANTAGES  TO  COUNTRY  OF  GIVING  FIXED  GOLD  VALUE  TO  COINS. 

The  only  means  of  avoiding  these  fluctuations  is  by  establishing  the 
new  currency  on  a  gold  basis.  Until  that  is  done  the  new  coins,  just 
as  ingots  of  silver  have  done  in  the  past,  wdll  pass  at  the  market  value 

«Pieul=133i  pounds. 


184       GOLD  STANDAKD  IN  INTEKNATIUNAL  TRADE. 

of  the  metal  they  contain  and  therefore  will  rise  and  fall  in  response 
to  the  manipulations,  of  the  silver  market  by  speculators.  That,  but 
for  these  fluctuations,  trade  would  during  recent  years  have  shown  a 
much  larger  expansion  than  it  has  done,  there  can  be  no  (juestion.  By 
the  establishment  of  the  new  currency  on  a  gold  basis  the  cause  of  these 
can  be  removed  and  stability  of  exchange  will  be  assured.  Such  a 
change  should  in  any  case  result  in  a  large  development  of  trade ;  but 
should  it  be  effected  simultaneously  with  the  opening  up  of  the  coun- 
try by  the  railroads  now  under  construction  and  to  be  undertaken  in 
the  near  future,  that  development  can  scarcely  fail  to  be  enormous 
because  new  markets  will  be  assured  to  native  produce  which  pre- 
viously could  not  be  moved  at  all  or  only  at  the  cost  of  heavy  trans- 
port charges.  The  proposal  would  therefore,  it  appears,  be  beneficial, 
not  injurious  to  trade. 

It  remains  to  consider  in  what  manner  the  adoption  of  a  gold  basis 
for  the  new  currency  would  aft'ect  China's  obligations  to  foreign  gov- 
ernments and  to  foreign  bondholders.  If  the  dollar  be,  as  has  been 
suggested,  fixed  at  2  shillings  (or  thereabouts)  then  the  value  of  the 
Haikwan  taelwoidd  be -^  shillings  (or  thereabouts),  the  value  at  which 
it  was  taken  by  the  foreign  powers  in  the  protocol  of  September  7, 
1901.  Now,  the  foreign  powers  maintain  that  the  indemnities  imposed 
by  that  document  are  payable  in  gold;  China,  that  the  debt  is  a  silver 
debt;  and  though  the  discussion  has  now  continued  for  more  than 
tAvo  years  each  side  adheres  to  its  own  interpretation  of  the  agreement. 
If  the  gold  value  of  the  Haikwan  tael  were  fixed  at  3  shillings,  all 
cause  for  future  discussion  would  cease;  but  if,  as  seems  possible, 
experts  consider  it  advisable  to  fix  the  gold  value  of  the  dollar  at 
slightly  above  that  of  the  Japanese  yen — say,  at  'is.  Id. — then  it  would 
be  to  China's  interest  to  accept  the  interpretation  placed  by  foreign 
powers  on  the  protocol  and  to  pay  in  gold ;  for  though  the  difference 
on  a  single  tael  is  trifling,  when  that  clift'erence  is  multiplied  by  mil- 
lions the  aggregate  is  a  very  large  sum.  As  regards  the  foreign 
indebtedness  incurred  by  China  prior  to  1901,  the  case,  however,  is 
different.  TJiat  indebtedness  is  a  gold  indebtedness  and  interest  on 
the  loans  raised  has  to  be  paid,  and  the  principal  of  them  has  to  be 
repaid,  in  gold.  When  those  loans  were  raised  the  Haikwan  tael 
exchanged  for  about  3s.,  or  36d. ;  in  1902  it  exchanged  at  one  time  for 
less  than  30d. 

Then,  the  fluctuations  in  exchange  rendering  it  dangerous  to  import 
silver,  the  stock  fell  until  it  was  unequal  to  the  current  demands  of 
business,  and  in  consequence  the  price  rose.  Latterly  again  the  out- 
break of  war  between  Russia  and  Japan,  coupled  with  the  approach 
of  the  tea  and  silk  seasons,  has  caused  a  further  c(msiderable  rise, 
and  the  gold  value  of  the  Haikwan  tael  now  stands  at  about  33}  pence. 
But  once  these  temporary  causes  have  ceased  to  work  it  is  j^ossil^le 
that  the  gold  value  of  silver  in  China  may  again  fall  to  the  former 
level.  NoWj  the  sum  which  China  has  to  pay  during  the  current  year 
for  the  service  of  her  foreign  loans  contracted  ])rior  to  1901  amounts 
to  £3,190,389  in  gold  and  703,000  taels  in  silver;  and  the  average 
sum  due  for  the  next  ten  years  is  practically  the  same.  If  the  gold 
value  of  the  Haikwan  tael  be  fixed,  as  suggested,  at  3  shillings,  (iiina 
would  have  to  pay  22,072,000-odd  taels,  l)ut  should  no  gold  value  be 
fixed  and  it  fell  to  its  former  level  of  30  pence,  China  would  need, 


(H>LD    STANDAKl)    IN     INTERNATIONAL    TRADE.  185 

in  order  to  moot  hor  ohliontions,  no  loss  a  sum  than  2r),334,000  taols. 
In  other  words,  by  adopting-  the  rate  proposed,  China  would  durinjr 
ten  years  etl'ect  an  annual  saving  4|  millions  of  taels  on  her  loan 
obligations  alone.  But  this  is  not  the  only  saving  she  would  effect. 
For  every  £10,000  she  has  to  pay  on  account  of  railway  loans,  and 
for  every  £10,000  she  si)onds  in  the  purchase  of  railroad  material  and 
rollirig  stock,  or  of  men  of  war  and  arms,  she  would  require  07,000 
taels  only  instead  of  S(),000  taels — i.  e.,  she  would  effect  a  saving  of 
j;),()00  taels,  in  the  aggregate  a  very  large  sum.  To  the  Government, 
therefore,  the  ad()])tion  of  the  i)r()posal  would  bo  most  advantageous. 

The  considerations  set  forth  above  show  clearly,  it  is  l)elieved, 
that  if  it  be  possible,  when  introducing  the  new  currency,  to  base 
it  on  a  gold  standard,  such  action  would  be  to  the  benefit  of  the  Gov- 
ernment and  people  alike.  It  nuiy  be  well,  in  order  to  avoid  misap- 
prehension, to  again  state  that  the  introduction  of  a  gold-standard 
currency  does  not  moan  the  introduction  of  gold  coins;  it  means  that 
silver  and  copi)or  coins  will  continue  as  heretofore  to  be  employed 
in  China,  but  that  a  gold  value  will  1)0  fixed  for  these  coins,  and  that 
steps  will  be  taken  to  insure  that  the  gold  value  is  maintained. 

If  the  new  currency  can  be  established  on  a  gold  basis,  there  can 
be  no  question  but  that  the  work  should  be  entered  upon  now.  The 
gold  value  of  silver  in  China  is  now  comparatively  high ;  later  it  may 
fall,  and  China  may  have  to  content  herself  with  a  lower  gold  value 
for  her  unit  of  currency  than  she  coidd  now'  secure  with  comparative 
ease.  China  should  reflect  on  Japan's  experience.  In  1871  the  latter 
country  estal)lished  a  gold-standard  currency,  the  value  of  the  yen 
being  fixed  at  a  little  over  4s.  The  steps  she  took  to  maintain  the 
value  of  the  yen  at  that  level  were  inadequate  and  the  country  was 
drained  of  gold,  with  the  result  that  the  silver  yen  became  the  unit 
of  currenc}',  and  so  remained  down  to  1897,  when  Japan,  having 
adopted  better-advised  measures,  succeeded  in  establishing  her  cur- 
rency on  a  gold  l^asis;  but  owing  to  the  decline  which  had  meanwhile 
taken  place  in  the  value  of  silver,  Japan  had  to  content  herself  with 
fixing  the  value  of  the  yen  at  exactly  half  the  value  at  which  it  had 
been  fixed  m  1871. 

It  is  true  that  India  when  placing  her  silver  currency  on  a  gold 
basis  fixed  the  legal  value  of  the  rupee  at  more  than  20  per  cent  above 
the  market  value  of  the  metal  contained  in  that  coin;  and  it  may  be 
said  that  what  India  did  China  can  do.  The  only  means  of  enhancing 
the  gold  value  of  a  silver  currency  is,  however,  by  restricting  the 
amount  of  that  currency.  In  India  it  was  five  years  before  this  arti- 
ficial restriction  of  the  currency  produced  the  desired  effect,  and  dur- 
ing that  period  it  caused  very  serious  interference  watli  trade.  Were 
the  currency  in  China  to  be  thus  artificially  restricted  during  a  series 
of  years  such  serious  discontent  would  result  that  it  would  probably 
.be  necessary  to  abandon  such  a  policy  before  it  l)ecame  effective,  in 
order  to  avoid  internal  trouble.  Whether  or  no  China  can,  w^hen  in- 
troducing her  new  currenc}'^,  establish  it  on  a  gold  basis  experts  alone 
can  decide,  and  the  writer,  not  having  expert  knowledge,  can  not  say. 
But  Mr.  Jenks,  who  is  an  expert  and  as  such  has  been  selected  by  the 
United  States  Government  for  this  special  work,  expresses  a  confi- 
dent opinion  that  if  China  really  desires  to  do  it  she  can  do  it;  and  in 
his  memorandum  on  "  A  Xew^  Monetary  System  for  China  "  he  has 


186       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

stated  in  a  general  way  the  action  which  it  will  be  necessary  for  China 
to  take  in  order  to  bring  tliis  undertaking  to  a  successful  issue.  Of 
these,  two  are  the  most  important,  and  it  is  precisely  these  two  which 
are  likely  to  receive  the  most  adverse  criticism  from  the  high  officers 
of  the  Empire— one,  the  appointment  of  a  foreign  comptroller  of  the 
currency;  the  other,  the  employment  of  the  seigniorage  profit  from 
coinage  as  one  of  the  steps  to  form  a  special  gold  fund  in  order  to 
maintain  the  gold  value  of  the  currency.  Hitherto  the  mints  estab- 
lished in  the  various  provinces  have  been  under  the  management  of 
the  provincial  officials;  souie  have  re]5orted  to  the  throne  the  number 
of  coins  minted  annually  and  tlie  seigniorage  profits  derived  there- 
from; but,  judging  from  the  pages  of  the  Peking  Gazette,  the  major- 
ity have  not  submitted  such  reports.  The  seigniorage  profits  seem  to 
have  been  almost  always  retained  to  meet  provincial  needs.  The  ex- 
tent of  China  is  so  vast  that  to  employ  a  single  mint,  even  if  it  were 
large  enough  to  meet  the  currency  needs  of  the  Empire,  would  be 
wasteful  policy,  because  of  the  expense  of  transporting  bullion  to  the 
mint  for  coinage  and  then  transporting  the  minted  coins  to  the  several 
parts  of  the  Empire.  The  bulk  of  the  mints  already  established  will, 
therefore,  be  retained,  but  it  will  be  necessary  that  the  control  of 
them  be  surrendered  by  the  various  provincial  authorities  and  be 
vested  in  one  bureau  or  officer  at  the  capital,  on  whom  will  rest  the 
responsibility  of  insiu'ing  that  all  coins  of  the  same  denomination,  no 
matter  where  minted,  are  of  uniform  weight  and  fineness.  The  trans- 
fer of  the  control  of  the  mints  from  the  provincial  authorities  would 
necessarily  entail  the  transfer  from  them  of  the  control  of  the  seign- 
iorage profits  derived  from  coinage.  All  that  is  proposed,  therefore, 
is  that  these  profits  derived  from  coinage  shall  be  set  aside  to  assist  a 
fund  specially  raised  in  maintaining  the  coinage  at  its  par  value. 

As  regards  the  comptroller  of  the  currency,  it  has  to  be  remem- 
bered that  his  duties  will  be  of  a  very  complicated  nature,  and  of  a 
kind  that  hitherto  Chinese  have  had  no  experience  of.  He  will  have 
to  watch  the  movements  of  the  precious  metals  all  over  the  world, 
to  note  the  tendencies  of  exchange,  and  to  take  measures  of  precaution 
accordingly  by  buying  gold  if  a  demand  for  silver  drives  the  price 
of  that  metal  up  or  by  selling  gold  if  the  price  of  silver  falls.  It 
will  be  his  duty  also,  after  careful  examination  of  local  conditions, 
to  determine  whether  or  no  to  suspend  the  issue  of  coins  of  a  certain 
denomination  in  a  given  province;  and  should  a  10-cent  piece,  say, 
fall  l)elow  its  par  value,  so  that  one  dollar  exchanges  for  more  than  ten 
of  them,  he  will  have  to  issue  immediate  orders  to  insure  that  steps  are 
taken  to  redeem  them  at  their  face  value  and  so  reestal)lish  the  parity 
of  the  coin.  On  him,  too,  will  rest  the  responsibility  of  determining 
the  amoimt  of  bank  notes  to  be  issued  in  any  one  province,  and  the 
reserve  in  coin  to  be  maintained  in  order  that  they  may  be  rcnleemed 
at  any  time  on  demand.  No  one  but  an  expert  with  special  training 
woulcl  possess  the  knowledge  requisite  for  the  performance  of  these 
duties,  and  it  is  only  a  foreigner  who,  at  the  outset,  would  have  tliis 
knowledge.  The  office  would  be  one  of  such  great  responsibility 
that  it  could  not  be  entrusted  to  any  l)ut  a  thoroughly  com]ietent  per- 
son without  grave  danger  to  the  State;  but  Avere  Eughind,  who  has 
just  reorganized  the  finan(;ial  aduiinistration  of  Siam  witli  signal 
success,  or  were  the  United  States,  ^^■ho  has  so  readily  and  so  disin- 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 


187 


terestedly  rosponded  to  China's  appeal  for  assistance  in  this  matter, 
requested  to  recoiiiniend  a  suitable  person  for  the  position,  I  see  no 
reason  to  think  that  China  wouhl  have  oroiiud  to  apprehend  any  evil 
conseciuences,  j)olitical  or  other,  from  <>iving  him  the  a])pointment ; 
Avhile  the  introduction  of  the  monetary  system,  which  it  then  would 
be  i)()ssible  to  establish,  would,  in  a  few  years,  it  is  anticipated,  result 
in  an  expansion  of  track'  and  render  possible  a  reduction  of  taxation 
that  would  be  of  the  greatest  benefit  to  the  Empire. 

Alfred  PI  Hippisley. 


Addendum  No.  1. 

Foreign  trade  of  China — Imports  (net). 


Year. 

Silver  value. 

Gold  value. 

Gold  value  of  liaik- 
wan  tael. 

1891 

Haikwan  taels. 
134,003,863 
VSi\  101, 198 
151,:362,819 
162,  Ke,  91 1 
171,(!96,715 
202,5.S9,'.KH 
202,828,62i) 
209,579,334 
264,748,456 
211,070,422 
268,302,918 
315,363,905 
326, 739, 133 

£32,932,617 
29,412,657 
29,799,566 
25,919,580 

28,(179,1)67 
3:1, 764,^199 
:i0.213.014 

:io.  231,18:) 
:«•,«.")(),  158 

32,759,888 
39,756,342 
40,997,958 
39,632,245 

s.  d.  Pence. 
4    11       59  0 

1892           

4  41  52.25 
3    11}      47.25 

3  2|  38.875 
3      3"^      39  25 

1893 

1894. 

1895 

1896 

1897- _ 

1898 

3      4       40.0 
2    11}      35.75 

2  101      34.625 

3  Oi  36. 125 
3      H      37. 25 

2    11^9;    35  5635 

1899 

1900 

190i 

1902 

1903 

2  74  31. 20 
2      7^      31.667 

Total 

2,755,490,293 

43:^,349,776 

Annual  average,  211,960,792  Haikwan  taels  =  £33,334,598. 

These  figures  shoAv  that  while  the  silver  value  of  foreign  imports 
has  increased  a  little  over  140  per  cent  in  the  thirteen  years,  the  gold 
value  of  them  has  increased  only  20  per  cent;  and  that  whatever  the 
denominating  factor  which  determines  the  amount  of  foreign  goods 
to  be  purchased,  that  factor  is  not  exchange,  the  gold  value  of  such 
purchases  having  been  practically  the  same  in  the  years  1891  and  1900, 
though  the  gold  value  of  the  Haikwan  tael  was  4s.  lid.  in  the  former 
3^ear  and  only  3s.  l^d.  in  the  latter  year.  Similarly  the  gold  value  of 
such  purchases  was  practically  the  same  in  the  years  1899  and  1903, 
thougli  the  gold  value  of  the  Haikwan  tael  was  3s.  OJd.  in  the  former 
and  only  2s.  7§d.  in  the  latter  year;  while  the  gold  value  of  the  trade 
in  1902,  the  year  in  which  exchange  was  at  its  lowest  point,  was  25 
per  cent  higher  than  that  of  1891,  when  exchange  was  at  its  highest 
level. 


188  GOLD    STANDARD    IN    INTERNATIONAL   TRADE. 

Addendum  No.  2. 
Foreign  trade  of   China. — Exports. 


Silver  value. 

Gold  value. 

Gold  value  of  1  haik- 
wan tael. 

1891 

Haikwan  taels. 
100,947,849 
103,583,535 
116,6*3,311 
138,104.533 
143,393,211 
131,(181,431 
163,.501,a58 
1.59,037,149 
195,784,832 
1.58,996,7.53 
169,656,757 
314,181,584 
314,a53,467 

£34,816,346 
33,SiJ,288 
33,961,986 
30,483,379 
33,434,411 
31,846,903 
34,a54,889 
83,944,433 
39,469,696 
34,677,631 
25,139,243 
37,843,606 
38,383,117 

s.    (1.           Pence. 
4    11           59 

1892                

4      4i         52. 85 

1893 -. 

1894 _ 

1895 -- 

1896     - - 

3    lU          47.35 
3      3S         38.375 
3      m         39.35 
3      4           40 

1897 - 

1898                                               

2  lU          35.75 

3  10s          34.625 

1899 _ 

1900          - 

3        ^          dH. 135 
3      li         37.35 

1901                                                  

3    lli%       a5.56;i5 

1903                 .            

8      7^         31.20 

1903 -.- - 

3      7f         31.667 

1,998,153,738 

318,587,907 

Annual   average,    153,704,134    Haikwan   taels  — £24,506,685. 

These  figures  shoAV  tliat  while  the  silver  value  of  exports  abroad  has 
increased  over  1 12  per  cent  the  gold  A^alue  of  them  has  increased  less 
than  14  per  cent,  and  that  the  gold  value  remains  practically  un- 
affected by  exchange,  the  gold  value  of  exports  abroad  having  been 
to  all  intents  and  purposes  on  a  level  in  the  j-ears  1891,  1897,  and  1900, 
though  the  rates  of  exchange  in  those  years  were  4s.  lid.,  2s.  llfd., 
and  3s.  l^d.,  respectively. 


Addendum  No.  3. 

Foj'eign  trade  of  India. 

[In  thousands  of  rupees.]  " 


Year  ending  March  31- 


1891 
1892 
189;^ 
1894 
1895 
1896 
1897 
1898 
1899 
1900 
1901 
1902 
1903 


Net  foreign  imports,  i.  e., 
imports  less  reexports. 


By  sea.    By  land,  i    Total. 


654,405 
649,037 
677, 419 
649,473 
616,750 
735,894 
684,714 
682, 188 
730,703 
699,093 

730,130 
776,8()1 
a53,73() 
836, 180 


37, 154 
35,053 
35,153 
m,  797 
;«,90<> 
40,374 
43,595 
45, 773 
47, 941 
50,337 
.55,036 
61,6::il 
64,149 
69,(Kt4 
68,700 


691,559 
684,080 
713,571 
689,270 
6.53,659 
766,3(i8 
788,309 
787,981 
768,644 
749,330 
733,335) 
781,751 
841,010 
S)31,730 
894,880 


Native  exports. 


By  sea. 


930,495 

991,645 

959, 938 

1,036,884 

1,030,0,53 

1,030,714 

1,0;«,.563 

1,096,1(57 

999,  .504 

9aS,816 

1,094,385 

1,057,!)08 

1,045,  .546 

1,316,449 

1,358,800 


By  land. 


44,801 
49,305 
30,397 
;>i)  ;j23 

3:s',8rK) 

34,317 
37,  .595 
37,691 
43,038 
40,.S36 
46, 379 
51,(I().S 
54, 363 
60,3K3 
.59,iMI0 


Total. 

975,396 
1,040,950 

990,235 
1,076,206 
1,0.53,852 
1,055,031 
1,076,157 
1,1:^,858 
1,04.3,  .533 

979,6,53 
1,140,664 
l,I(I.S,97(! 
1,0119,808 
1,376,731 
l,318,7tX) 


I  Rupee  =  about  32;  cents. 


GOLD    STANDARD    IN    INTERNATIONAL    TKADK. 


18  V) 


Tlio  mints  wore  closed  to  the  free  coinage  of  silver  in  1803,  but  the 
cii'ect  of  this  measure  only  l)e<i"an  to  make  itself  felt  in  the  year  lSt)()- 
97,  by  Avhich  time  the  average  rate  per  rupee,  at  which  telegraphic 
transfers  and  council  bills  were  sold  in  London,  had  risen  to  ll.lOld. 
from  m.lOld.  in  181)4-1)5.  In  181)7-1)8  it  had  risen  to  15.3r)ld.,  and 
from  that  time  forward  the  gold  value  of  the  rupee  has  been  main- 
tained at  IGd.,  the  level  aimed  at  b}^  the  legislation  of  181)3. 

The  average  value  of  the  import  and  of  the  export  trades  during 
the  five  years  before  181)(M)7  and  after  1897-98  is  a  matter  of  some 
interest.  The  figures  are:  Five  vears  prior  to  1 890-1)7,  average 
annual  value  of  imports,  713,000,000;  exports,  1,079,000,000.  Five 
years  following  1  S!)7-98,  average  annual  vahie  of  imports,  830,000,000 ; 
exports,  1,189,000,000. 


Addendum  No.  1. 

Foreign  trade  of  Japan. 


Year. 


Exports. 


Imports. 


Yen. 


Pounds 
sterling. 


Yen. 


Pounds 
sterling. 


Gold 
value  of 
one  yen. 


1891. 
1892 
1893 
1894 
1895 
1896 
1897 
1898 
1899 
1900 
1901 
1902 
1903 


79,527,272 
91,102,754 
89, 712, 865 
118,246,086 
136,112,178 
117,842,761 
163,135,077 
165,753,753 
214,929,894 
204,429,994 
252,349,543 
268,3(^3,065 
289,502,443 


12,790,636 
13,096,021 
11,475,270 
11,890,839 
14, 348. 909 
12, 766, 303 
16,585,400 
16,787,526 
22,030,314 
20,698,537 
2.5,  .550, 391 
26,476,065 
29,674,000 


62,927,268 
71,326,080 
88,2.57,172 
117,481,955 
129, 260,  .578 
171,674,474 
219,300,772 
277,502,157 
220,401,926 
287,261,84(i 
255,816,645 
271,731,259 
317,135,517 


10,120, 
10, 253, 
11,289, 
12,3:i5, 
13,626, 
18,  .598, 
22,25)5, 
28,097, 
22,591, 
29,0a5, 
25,901, 
27,853, 
32,506, 


Pence. 
38.6 
34.5 
30.7 
25.2 
25.3 
26.0 
24.4 
24.3 
24.6 
24.3 
24.3 
24.6 
24.6 


Japan  adopted  gold  monometallism  in  1871,  but  the  measures  taken 
were  inadequate  to  prevent  a  drain  of  gold  abroad.  In  1897  she 
reverted  to  monometallism  and  took  measures  Avhich  have  proved 
eft'ective  in  retaining  the  gold  amassed  in  the  country.  The  average 
annual  values  of  the  foreign  trade  of  Japan  during  the  six  years  prior 
to  and  following  on  the  year  in  which  the  gold  standard  was  estab- 
lished compare  thus:  Six  years  prior  to  1897 — Average  annual  value 
of  imports,  100,821,254  yen;  exports,  104,590,052  yen.  Six  years  fol- 
lowing 1897 — Average  annual  value  of  imports,  271,041,500  yen; 
exports,  231,044,782  yen. 


190  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

Value  in  copper  cash  of  1  lad,  Bhawjliai  currency. 


Cash. 

January,  1871 1,560 

July,  1871 1,  <50() 

January,  1872 1,  G40 

July,  1872 1,  500 

January.  1873 1,  610 

July,  187;] 1,620 

January,  1874 1,  630 

July,  1874 1,  6ir> 

January.  1875 1,  595 

July,  1875 1,  600 

January,  1876 1,  560 

July.  1876 1,  530 

January.  1877 1,  500 

Jul.y,  1877 1,  470 

January,  1878 1,  440 

July,  1878 1,435 

January,  1879 1,  460 

July,  1879 1.450 

January,  1880 1,  490 

July,  1880 1,  490 

January,  1881 1,  520 

July,  1881 1,  520 

January,  1882 1,  500 

July,  1882 1,  520 

January.  1883 1,  520 

July,  1883 1,  500 

January,  1884 1,  490 

July,  1884 1,  480 

January,  1885 1,  480 

July,  1885 1.  490 

January,  1886 1,  480 

July,  1886 1,  480 

January,  1887 1,  390 

July,  1887 1,  390 


Cash. 

January,  1888 1,  420 

July,  1888— 1,  420 

January.  1889 1,  400 

July,  1889 1,410 

January.  1890 1,  350 

July,  1890 1,330 

January,  1891 1,  330 

July,  1891 1,  370 

January,  1892 1,  380 

July,  1892 1,410 

January,  1893 1,  410 

July,  1893 1,380 

January,  1894 1,  380 

July,  1894 1,330 

January,  1895 1,  320 

July,  1895 1,  320 

January,  1896 1,  230 

July,  1896 1,240 

January.  1897 1,  220 

July,  1897 1,  250 

January,  1898 1, 150 

July,  1898 1, 190 

January,  1899 1, 190 

July,  1899 1, 180 

Jainiary,  1900 1, 190 

July,  1900 1,  200 

January,  1901 1,  210 

July,  1901 1,  210 

January,  1902 1,  210 

July,  1902 1,  200 

January,  1903 1, 150 

July,  1903 1,  140 

January,  1904 1, 110 

May,  1904 1,  320 


Value  in  copper  cash  of  1  Haikwan  tacl  currency  (Tientsin). 


Cash. 

1883 3,  286 

1884 3,  286 

1885 3,  286 

1889 3,  074 

1890 3,  074 

1891 3,  286 

1892 3,  263 


Cash. 

1893 3, 155 

1894 3,  157 

1895 2,  918 

1896 2,  730 

1897 2,  625 

1898 2,  512 


2.     MEMORIALS  TO   THE   CHINESE   IMPERIAL   GOVERNMENT. 

(o)  Memoiual  Recommending  the  Adoption   by   China  of  a  Gold-Standakd 

Monetary  System. 

Presented  hy  the  Chinese  minister  to  Russia. 

Owing  to  the  fact  that  the  United  States  and  Mexican  monetary 
commissions  have  been  to  Kiissia  and  completed  their  Avork  and  that 
the  American  commissioner  is  now  going  to  China  to  confer  upon  the 
coinage  question,  this  memorial  has  been  prepared  and  is  respectfully 
presented,  and  we  humbly  beg  the  favor  of  the  imperial  glance. 

We  beg  to  state  that  the  United  States  and  Mexico  have  appointed 
a  special  commission  of  experts  to  invite  the  i-espective  (governments 
of  Great  Britain,  France,  Germany,  and  Kussia  to  confer  upon  the 


GOLD   STANDARD    IN    INTERNATIONAL   TRADE.  191 

subject  of  the  relative  value  of  silver  and  gold  and  to  consider  a  mone- 
tary system  for  the  Chinese  Government,  ^'our  humble  servant 
received  a  telegfram  from  the  board  of  revenue  saying  that  he  should, 
upon  the  arrival  of  the  said  counnissions,  appoint  an  official  to  listen 
to  their  })lans  and  report  upon  the  matter  to  the  board.  I  am  now  in 
receijjt  of  a  letter  fi-om  the  American  counnissioner,  Mr.  Jenks.  saying 
that  he  has  received  instructions  from  the  President  to  proceed  to 
China  and  make  a  thorough  investigation  of  the  matter. 

The  United  States  is  well  known  for  its  successful  handling  of 
financial  questions  and  at  the  same  time  has  always  showed  great 
friendship  for  China,  so  that  we  should  certainl}^  accept  without  delay 
this  energy  of  hers  in  our  behalf,  whereby  she  wishes  to  develop  a 
system  for  us.  I  read  with  due  reverence  the  Imj^erial  edict  pub- 
HsIumI  in  the  third  moon  of  the  present  year,  by  which  Prince  Ching 
and  Cliii  Hung-chi  were  appointed  to  consider  and  deal  with  the 
whole  question  of  the  monetary  administration.  I  am  pleased  to  see 
that  the  monetary  question  is  considered  by  the  throne  to  be  one  of 
great  importance  and  requiring  lengthy  consideration. 

In  the  matter  of  a  monetary  system  the  coinage  is  the  first  thing 
to  be  considered.  Your  servant  begs  to  relate  in  detail  to  the  Em]:)ress 
Dowager  and  the  Emperor  the  exact  state  of  affairs  both  foreign  and 
domestic.  The  question  of  coinage  is  in  itself  a  nation's  ow^n  affair; 
but  nowadays  there  is  not  anything  in  business,  commerce,  or  govern- 
ment that  does  not  mutually  involve  the  people  of  different  nations, 
which  does  not  involve  foreign  exchange.  If  the  monetary  systems  of 
the  countries  do  not  agree,  it  is  impossible  to  prevent  loss.  To  have  a 
good  monetary  S3'stem  a  country  must  have  a  definitely  fixed  coinage, 
using  gold,  silver,  and  copper  at  a  definite  fixed  ratio.  The  coins  must 
be  of  the  same  pattern,  value,  and  fineness  throughout  the  country, 
if  the  best  interest  of  the  people  is  to  be  considered  and  it  is  desired 
to  secure  the  faith  of  foreign  nations.  Those  who  have  a  gold 
standard  do  not,  for  that  reason,  suffer  any  loss  in  exchange,  and 
international  intercourse  is  easily  arranged. 

Financial  experts  liaA'e  estimated  the  year's  yearly  output  of  gold, 
and  there  is  no  cause  for  concern  lest  it  be  not  enough  for  the  supply 
of  the  people  of  every  country.  As  to  the  output  of  silver,  there  is  no 
end  to  it.  The  greater  the  supply  of  silver  the  cheaper  it  gets,  so  that 
the  present  high  ]:)rice  of  gold  is  not  in  reality  that  gold  is  dear,  but 
rather  that  silver  is  cheap.  China  has  made  a  practice  of  using  silver, 
and  consequently,  using  this  as  a  standard,  the  Chinese  consider  that 
gold  has  daily  gotten  dearer.  Other  countries  have  made  a  practice 
of  using  gold,  on  the  other  hand,  and  henc^,  using  this  as  a  standard, 
they  consider  that  silver  has  daily  gotten  cheaper.  A  gold-standard 
country  is  like  a  man  who  has  accmnulated  riches  to  buy  grain — if  the 
grain  is  cheap,  he  reaps  the  benefit.  A  silver-standard  country  is  like 
a  farmer  who  has  accumulated  his  grain  anil  holds  it  for  a  rise  in 
price — if  the  ])rice  goes  down,  he  suffers.  So  silver-using  countries 
and  gold-using  countries  are  in  the  same  case  as  two  people  making  a 
barter,  in  which  one  man's  daily  increase  of  loss  (on  account  of  his 
waiting  each  day  for  a  higher  price)  is  only  the  other  man's  daily 
increase  of  gain.  Therefore,  if  we  use  uncoined  silver  for  money  we 
are  in  just  such  a  case,  of  barterers  with  those  countries  which  have  a 
gold  coinage,  and  it  is  needless  to  say  which  country  is  the  loser.  To 
use  uncoined  silver  for  money  is  like  using  uncooked  rice  for  food  or 


192       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

uncut  cloth  for  clothino;,  for  uncoined  silver  is  nothing  more  than  a 
product  of  the  earth.  Other  nations  consider  silver  merely  as  a  com- 
modity and  not  as  money. 

It  is  already  hard  to  meet  our  demands,  and  hereafter  it  Avill  be  all 
the  harder  to  put  the  country  on  a  firm  footing.  At  the  ])resent  time 
gold  is  used  in  all  nations  throughout  the  world.  Even  among  their 
dependent  countries  there  is  not  one  which  does  not  use  gold.  Russia 
in  Bokhara  uses  gold.  England  in  India  uses  gold.  The  United 
States  in  the  Philippines  uses  gold.  England  is  now  planning  to  use 
gold  in  Hongkong,  and  Russia  has  already  begun  to  introduce  roubles 
into  Manchuria — just  as  if  Manchuria  were  one  of  her  own  depend- 
encies, as  in  the  other  cases  mentioned.  Why  do  they  hasten  so? 
Because  when  a  counlry  plans  and  marks  out  a  frontier  she  must 
reckon  upon  its  expenses — for  is  not  the  profit  of  her  dependency  the 
nation's  own  profit  as  well?  It  is  equally  evident  that  as  the  poAver 
of  gold  increases  the  power  of  silver  decreases,  consequently  a  country 
Avill  spare  no  efforts  or  endeavors  to  regulate  the  expenditures  so  that 
her  dependency  will  not  be  a  burden  to  her.  Where  is  there  another 
nation  as  rich  as  China  in  land  and  subjects  which  would  not  speedily 
change  her  policy  ? 

It  is  very  evident,  then,  that  nations  which  have  not  a  gold  stand- 
ard, but  keep  on  with  silver  at  a  debased  value,  will  suffer.  The  sys- 
tem of  coinage  as  adopted  by  the  other  nations  has  a  fixed  value  in 
relation  to  each  other,  and  although  there  are  exchange  charges,  the 
market  value  is  approximately  the  same,  so  that  banks  have  no  change 
to  impose  ui)on  the  people,  nor  have  foreign  merchants  any  oppor- 
tunity for  swindling.  If  China  has  a  uniform  national  coinage,  then 
she  will  be  on  the  same  footing  with  other  nations,  and  there  will  be 
no  cause  for  anxiety  in  the  matter  of  exchange.  The  three  metals, 
gold,  silver,  and  copper,  will  have  a  fixed  relative  value;  one  silver 
piece  being  worth  so  many  copper  ones,  and  one  gold  piece  being 
worth  so  many  silver  ones.  Once  fix  the  relative  value,  and  it  must 
folloAv  that  all  financial  affairs,  large  and  small,  will  have  some  defi- 
niteness.  Coins  can  then  be  used  everywhere,  far  and  near,  at  the 
same  value.  Officials  and  people  can  then  use  them  without  having 
them  discounted  for  short  weight.  With  everything  uniform,  business 
affairs  Avill  be  easily  managed.  Rapacious  underlings  and  dishonest 
traders  will  have  no  opportunity  to  squeeze. 

It  will  be  to  the  great  internal  advantage  of  the  country,  both 
business-wise  and  politically.  Then  there  will  be  some  confidence 
both  among  Chinese  and  foreigners,  and  in  foreign  intercourse  it  will 
only  be  necessary  to  consider  the  ordinary  price  of  the  article, 
whether  it  is  high  or  low,  and  it  will  not  be  necessary  to  figure  on 
Ibe  danger  of  a  rise  or  fall  in  the  price  of  silver.  It  being  easy,  there- 
fore, to  determine  loss  or  ijain,  business  will  flourish,  capital  will 
accumulate,  and  it  wmU  be  beneficial  in  every  way.  England's  com- 
mercial supremacy,  America's  sudden  advance,  and  Japan's  rapid 
progress  are  all  due  to  this  one  fundamental  reason,  and  the  benefits 
they  derive  are  innumerable. 

Nevertheless,  this  is  a  large  undertaking  and  is  hard  to  bring 
about;  and  those  who  object  have  some  reason  on  their  side.  But 
your  servant  begs  (o  state  that  there  is  absolutely  nothing  to  be  feared 
in  spite  of  what  the  o])position  may  say  against  the  plan  and  he  will 


GOLD    STANDAED    TN    1 NTEKNATIONAL    TRADE.  193 

|)r()c(^o(l  to  explain  in  dolail.  Tlu'  oj^position  hrin^L!;  up  eight  ("ounts 
iiijfiiinst  tlie  plan,  -wliich  will  Ix'  taken  up  one  by  one. 

First,  they  say  that  Chinese  coinniodities  are  all  cheap,  and  that  the 
people  are  economical :  that  copper  is  the  ordinary  means  jaf  exchange, 
silver  being  used  but  little,  and,  neeiUess  to  say,  gold  not  at  all. 

As  to  this  argument,  they  do  not  understand  that  the  idea  is  to 
use  gold  in  order  that  foreign  nations  will  have  faith  in  China,  and 
it  is  not  desired  that  the  masses  will  suddenly  begin  using  gold  as  a 
medium  of  exchange.  They  may  use  copper  or  silver  just  as  they 
please.  At  present  sycee  silver  is  used  in  Peking,  though  the  com- 
mon peoj)le  seldom  see  it  and  in  the  commercial  i)orts  the  foreign  dol- 
lar is  used,  though  the  dollar  is  seldom  seen  in  the  country  districts. 
That  is  just  the  way  it  will  be  with  gold ;  it  will  begin  to  be  used  at  the 
l^orts  and  its  use  will  gradually  work  inward,  and  from  the  large 
centers  it  Avill  spread  to  the  frontiers.  Every  place  will  change  from 
copi)er  to  silver  and  from  silver  to  gold,  gradually.  There  Avill  be  no 
sudden  jump  from  copper  over  to  gold.  From  the  time  wdien  bartering 
was  done  with  furs,  hides,  rice,  and  cloth  up  to  the  present  day 
i)eople  have  used  as  a  medium  of  exchange,  first  iron,  then  copper, 
then  silver,  and  then  gold,  going  gradually  from  one  to  another. 
The  change  could  neither  have  been  checkecl  nor  could  it  have  been 
forced.  There  is,  then,  nothing  to  be  concerned  about  in  the  first 
count. 

The  opposition  hold,  secondly,  that  China  is  a  large  country  with 
very  many  people,  and  that  there  is  not  enough  gold  obtainable  to 
change  in  a  day  to  a  gold  standard.  They  do  not  understand  that  in 
inauguarating  this  system  the  desire  is  to  let  the  other  nations  know- 
that  Ave  really  have  a  gold  reserve  with  which  to  guarantee  the  set- 
tled ratio  between  gold  and  silver  and  to  prevent  fluctuations.  More- 
over this  will  prevent  the  losses  sustained  in  trade  by  the  sudden 
appreciation  in  value  of  tlie  imports  as  against  the  depreciation  of 
the  exports.  It  will  not  be  necessary  to  coin  much  gold  for  use  in 
trade,  as  it  is  not  expected  that  gold  alone  will  be  used  for  this  pur- 
pose. The  gold  reserve  of  India  is  not  10  j)er  cent  of  the  amount  of 
other  money  in  regular  circulation.  If  gold  and  silver  are  both  used 
to  meet  the  demands  of  trade,  a  gold  coinage  to  the  amount  of  15  per 
cent  of  the  silver  coinage  would  be  sufficient.  China's  silver  coinage 
is  practically  all  in  the  hands  of  the  people,  and  if  it  were  all  gathered 
together,  and  its  value  estimated  in  gold,  there  would  not  be  10  per 
cent  of  that  amount  in  the  Empire.  But  if  the  amount  of  silver  is  too 
great  the  Government  can  issue  gold  and  buy  silver  which  they  can 
store  away,  thus  reducing  at  once  the  amoiuit  of  silver  on  the  market. 
This  will  cause  the  banlcs  also  to  let  out  their  gold  in  order  to  obtain 
silver  for  commercial  use.  Then  the  (xovernment  can  buy  up  gold 
and  issue  silver  to  relieve  the  banks.  Thus  there  need  be  no  appre- 
hension about  regulating  the  suppW  and  demand — the  second  count 
of  the  opposition. 

The  third  count  is  that  the  Chinese  banks  make  their  livelihood  out 
of  exchange,  discounts,  false  cash,  etc.,  and  they  consicKu"  weight, 
fineness,  short  count,  and  small  cash  as  a  source  of  profit.  If  the 
country's  coinage  be  settled  and  uniform  this  source  of  siipj)ly  will  be 
reduced  to  a  mininuun.  hence  the  change  does  not  a])peal  to  them. 

As  to  this,  they  do  not  understand  that  the  things  they  do  are  a 
S.  Doc.  128,  5&-3 13 


194       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

menace  to  trade  and  sliould  be  prohibited  by  laAv,  just  as  weights  and 
measures  are  established  by  the  (lovernment.  Once  establish  a 
national  coinage  and  this  practice,  though  not  forbidden,  will  stop. 
Trade,  moreover,  will  prosper  and  all  business  interests  flourish. 
There  Avill  be  more  need  of  large  banks  and  the  snuiU  banks  need  have 
no  fear  lest  they  will  have  no  means  of  jnaking  money.  These  small 
gains  will  be  forbidden  merely  that  they  may  begin  making  large 
gains.     So  much  for  their  third  contention. 

Now  for  the  fourth  count.  Prominent  official  men  of  certain  coun- 
tries ridicule  Chinese  officials  because  in  the  collection  of  taxes  and 
duties  they  use  silver  and  copper  of  various  ditl'erent  kinds,  and  they 
manipulate  the  discoiuit  and  exchange  so  as  to  appropriate  money  to 
themselves.  They  say  that  the  salaries  of  these  officials  are  so  small 
that  they  depend  upon  this  to  make  up  the  difl'erence,  and  as  the  estab- 
lishment of  a  national  currency  would  take  away  their  livelihood  they 
invariably  set  up  a  howl  of  opposition  to  it.  In  this  the  prominent 
foreign  officials  do  not  take  into  consideration  the  fact  that  reforms 
are  made  for  the  benefit  of  the  ])eople  and  not  for  the  benefit  of  these 
mercenary  officials.  It  s  merely  the  fact  that  the  currency  is  unstable 
that  has  brought  about  this  wretched  state  of  affairs.  If  the  coinage 
were  uniform  this  practice  of  apj)ropriation  of  funds  would  be 
stopped.    This  answers  the  fourth  objection. 

The  fifth  objection  is  that  the  mints  in  the  various  provinces  now 
reckon  upon  a  surplus  to  make  up  deficiencies  in  the  provincial  ex- 
penses. If,  in  the  new  monetary  system  this  all  had  to  be  accounted 
for,  they  would  suddenly  be  dej^rived  of  these  funds,  and  hence  they 
do  not  want  any  change.  They  do  not  understand  that  a  national  cur- 
rency does  not  necessarily  mean  that  there  shall  be  only  one  mint  and 
that  there  can  be  no  branch  mints. 

The  very  fact  that  we  have  had  no  uniform  coinage  system  and 
there  are  no  coins  everyAvhere  current,  caused  the  provinces  heretofore 
to  coin  silver  dollars  for  the  convenience  of  the  people.  It  was  not 
originally  intended  that  the  surplus  of  the  mints  should  go  to  enrich 
the  various  provinces.  It  all  belongs  to  the  nation,  and  why  distin- 
guish between  this  place  and  that? 

Thus  disposing  of  the  fifth  count,  let  us  ju-oceed  to  the  sixth, 
which  is  this:  China's  foreign  indemnity  of  several  millions  is  reck- 
oned ill  silver.  If  we  suddenly  adopt  a  coinage  of  gold  and  silver 
in  reckoning  the  amounts  due  in  the  moneys  of  these  vai-ious  coui^tries 
it  will  be  difficult  to  guarantee  that  we  will  not  involve  ourselves  in 
trouble.  They  do  not  understand  that  all  nations  have  recently 
adopted  the  gold  standard,  and  that  the  United  States,  England, 
Germany,  and  France,  therefore,  especially  desire  that  we  also  should 
use  gold  for  the  sake  of  convenience  in  conmierce.  For  that  reason 
England,  in  her  commercial  treaty,  inserted  a  clause  providing  for  the 
ado]:)tion  of  a  definite  monetary  system  for  (^hina.  The  ITnited  States 
has  been  even  more  solicitous,  using  every  effort  in  our  behalf.  If 
even  these  other  countries  talcc  this  stand,  we  ought  to  be  the  more 
anxious  to  enibra(;e  the  opj)<)rtunity  to  adopt  a  firm  policy;  then  if 
there  arc;  one  or  two  nations  who  do  not  Avish  China  to  become  a  rich 
and  poAverful  nation,  they  can  not  well  come  out  publicly  and  try  to 
prevent  it. 

This  answers  their  sixth  objection,  and  it  is  claimed,  seventhly,  that 
if  we  have  a  gold  standard  to  obtain  the  confidence  of  foreign  nations, 


I 


aoLD  STANDARD  IN  INTERNATIONAL  TRADE.        195 

the  balance  ol"  trade  lu'inf!;  constantly  ai^aiiist  us,  foivi^ii  iiiorchants 
will  l)(»  s<Muliii<;  all  our  money  home,  and  our  "  «j::old  coinaije  "  will  flow 
oiitwanl  as  fast  as  we  can  coin  it.  I'liev  do  not  understand  that  wiien 
imports  are  ^reat  and  exports  small,  money  <i;ets  into  the  Jiands  of 
foreisjners  and  the  amount  of  money  on  the  market  is  small.  If  the 
amount  of  money  on  the  niiU'ket  is  small  its  value  is  hi<j,h,  and  with 
the  money  dear  prices  must  «:o  down.  The  foreign  merchants  will 
compete  agfainst  each  other  in  buyinc^,  so  our  exports  Avill  increase  and 
oiii-  money  return  to  us,  A<rain,  if  money  is  scarce  then  the  {)rice  of 
foreign  commodities  will  rise  and  their  sale  will  diminish.  If  the  sale 
of  foreign  goods  diminishes,  they  will  bring  ovei-  less  and  money  will 
return  into  circulation.  Moreover,  if  money  is  scarce  the  rate  of 
interest  Avill  go  up. 

If  the  rate  of  interest  goes  up,  then  foreigners  who  had  counted  on 
sending  their  money  home  will  leave  it  here  for  the  sake  of  the  high 
interest.  France  at  the  jjresent  time  has  15,000  Avan  (wan=10,000 
.".  150,000,000)  francs  deposited  in  New  York  at  interest,  which  she 
does  not  take  back  to  Europe.  China's  imports  exceed  her  exports 
from  10  to  15  million  taels  a  year, but  the  actual  silver,  instead  of  being 
exj)orted,  is  invested  in  China  again  by  the  foreign  merchants,  so 
that  even  if  it  is  not  in  the  hands  of  the  Chinese  themselves,  still  that 
is  not  to  their  disadA'antage.  Take  Japan  and  Russia,  for  example, 
and  see  their  statement  of  their  exi)orts  and  imports  of  goods  as  com- 
pared to  the  inflow  and  outflow  of  their  wealth  since  they  adopted  a 
gold  standard.  There  is  convincing  proof.  These  two  countries  also 
feared  the  very  same  thing,  namely,  that  their  exports  would  be 
small  and  their  gold  would  flow"  out  of  the  countries.  But  Ave  can 
see  from  these  countries  that  there  is  nothing  to  fear  on  this  ground, 
Avhich  is  the  seA'enth  objection  raised. 

Eighthly,  prominent  officials  of  some  countries  claim  that  the  Chi- 
nese are  fond  of  talking,  l)ut  never  do  anything,  and  that  they  stick 
to  their  ancient  customs  so  hard  that  it  is  difficult  to  ado])t  anything 
ne.Av.  It  Avas  shoAvn  in  the  case  of  the  laAv  adopted  in  Tientsin  requii-- 
ing  stamped  paper  for  all  legal  documents,  Avliich  laAv  was  speedily 
abolished,  and  is  not  in  force  to-day.  They  say  that  a  ncAV  coinage 
system  is  a  nnicli  graA'er  and  more  complicated  affair  than  that,  and 
it  will  therefore  be  A'ery  hard  to  introduce.  These  ])eople  do  not  take 
into  consideration  the  fact  that  the  stamped-jiaper  tax  takes  the 
money  aAvay  from  the  people,  and  for  tliis  reason  seems  to  them  not 
to  be  to  their  advantage.  Still,  this  system  can  perhaps  be  introduced 
gi-adually.  The  establishment  of  a  national-currency  system,  how- 
eA'er,  is  for  the  benefit  of  the  people,  being  far  from  their  disadvan- 
tage in  any  way,  so  the  tAvo  things  are  not  alike  at  all.  The  AA^ealthy 
and  prosperous  provinces  in  the  southeast  already  use  silver  dollars, 
and  within  the  last  three  years  the  noi'thern  provinces  ha\'e  come  to 
use  them  ([uite  extensively.  Is  jiot  this  clear  proof  that  the  systiMu 
can  be  introduced,  and  that  it  will  be  a  permanent  one?  So  much 
for  their  eighth  and  last  objection. 

Tims  we  see  the  folly  of  not  using  gold,  as  well  as  the  advantages 
gained  and  the  dangers  avoided  by  adopting  its  use.  Comparing  and 
investigating  tlie  two  courses,  there  is  nothing  to  fear  in  taking  the 
step. 

Your  servant  now  l)egs  to  suggest  a  ncAv  plan  foi-  (liina.  In  this 
plan  there  Avill  be  six  jjoiiits  considered,  and  the  first  of  these  is ;  We 


196       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

must  adopt  a  fixed  name  and  wei<>ht  for  onr  coins.  All  countries 
ha\'inj2"  a  nation-d  coinage  system  have  a  sj)ecial  name  for  their  coins, 
e.  g.,  the  English  pound,  iVmerican  dollar,  Russian  rouble,  German 
mark,  and  French  franc.  With  the  exception  of  the  pound,  which  is 
onl}'  in  gold,  they  all  use  silver  and  gold  together,  using  two  metals, 
but  a  single  nomenclature.  One  gc>ld  piece  is  worth  5  or  10  or  '20  sil- 
ver pieces,  as  the  case  may  be,  and  one  silver  piece  is  worth  so  many 
copper  ones,  and  each  piece  has  its  own  particular  name.  Plaving 
established  the  relati\'e  value  for  the  coins  for  the  Avhole  country,  no 
other  coins  will  be  allowed  circulation,  nor  Avill  there  be  the  slightest 
difference  in  weight. 

The  reason  for  such  measures  will  be  to  prevent  all  chances  for  cor- 
ru])t  ])ractice.  In  China  we  nse  taels  (ounces)  of  silver.  These  taels 
are  merely  the  signification  of  the  weight  and  are  not  the  name  of  any 
coin.  A  piece  of  silver  is  now  merely  so  many  ounces,  whereas  if  we 
had  a  standard  coinage  it  Avould  have  a  special  name.  And  besides 
the  ounce  itself  differs  greatlj^  in  different  parts  of  China,  which 
only  increases  the  chances  for  tricky  reckoning  among  the  Chinese 
themselves,  and  has  long  caused  our  system  to  be  rejected  by  the  for- 
eigners. Once  dispense  entirely  with  the  name  ''  tael  "  and  introduce 
a  national  uniform  coinage  for  the  whole  country,  and  our  financial 
relations  at  home  and  abroad  will  have  stability.  The  American 
commissionei"  at  the  time  of  the  conference  called  our  prospective  new 
coin  a  "  tael,"  but  that  was  only  becanse  there  was  no  new  name  for  it 
and  he  nsed  the  old  one  temporarily;  it  was  not  that  he  thought  the 
new  coin  mnst  of  necessity  be  called  a  "  tael."  We  call  our  copper 
coins  by  the  name  of  "  wen  "  and  onr  silver  ones  by  the  name  of 
"■  yuan.'"  AVe  call  onr  silver  pieces  "  yuan  '"  becanse  they  are  round, 
and  ''  yuan  "  means  round. 

For  the  same  reason  copper  cash  were  called  "  ynan '"  in  ancient 
times.  The  northern  and  western  provinces  nse  the  tael  system  and 
their  business  is  comparatively  small,  whereas  the  southern  and  east- 
ern provinces  use  dollars  (yuan)  for  the  most  part,  and  their  business 
is  large.  So  it  Avould  be  for  the  convenience  of  all  to  have  a  new  coin 
and  call  it  "  yuan,"  and  moreover  this  measure  would  lead  to  great 
benelits.  In  Hupeh  they  formerly  used  taels,  but  from  the  time  that 
silver  dollars  came  into  use  the  pay  of  the  soldiers,  the  salary  of  the 
ofliciids,  and  the  school  expenses  were  every  one  of  them  paid  in  dol- 
hirs.  They  have  nsed  this  system  there  for  the  ])ast  five  yeai-s  and 
pronoiuice  it  most  ad^'antageons.  If  one  province  finds  such  to  be  the 
case,  then  others  Avill  come  to  the  same  conclusion. 

As  to  the  weight  of  the  new  coin,  the  Government  should  take  into 
consideration  the  weight  which  the  people  are  in  the  hal)it  of  using 
as  well  as  the  general  standard  of  other  countries,  and  then  make 
regulation  by  law.  After  a  thorough  investigation  of  the  state  of 
all'aii-s  both  at  home  and  abroad,  it  is  my  o]7inion  that  Ave  should  de- 
cide u|)on  the  now  generally  used  weight  of  0.72  ounce  (as  in  the 
Mexican  dollar)  as  the  standard  to  be  adopted  and  adhered  to,  and 
not  retain  the  useless  and  uneven  tael  system.  According  to  the  new 
system  1  yuan  would  be  Avorth  100  small  cash,  which  would  be  a  very 
simph'  system  in  exchange.  Your  servant  discussed  this  matter  with 
Mr.  Jeuks,  of  the  TTnitcd  States  Monetary  Connnission-,  and  he  also 
thought  this  plan  the  best,  because  a  dollar  weighing  an  ounce  would 


GOLD    STANDARD    IN    INTERNATIONAL    TRAD?].  197 

he  too  lioavv  and  too  l:n-<io,  and,  besides,  no  country  has  such  a  coin  in 
use,  nor,  for  thai  uialtei-.  is  (here  any  such  coin  iii  use  in  the  Chinese 
market.  It'C'hina  really  adopts  a  coin  of  the  wei<ih(  of  O.T'J  of  an 
ounce,  it  will  he  niorc  convenient  and  bring  much  better  results. 
Mexico  is  now  considering  the  a(h)ption  of  a  coin  worth  just  half  of 
an  American  gold  dollar.  The  new  coin  is  to  be  of  the  same  weight 
as  tlie  Mexican  dollar,  which  has  long  been  in  use  in  China. 

If  we  adopt  such  a  coin  as  this,  having  a  definite  value  with  ivlation 
to  the  American  dollar,  (hen  it  will  have  a  definite  value  with  relation 
to  the  coins  of  every  other  country,  because  the  American  dollar  itself 
has  a  definite  relative  value  with  the  coins  of  other  countries.  The 
matter  of  exchange  then  will  be  perfectly  simple  and  also  definite, 
which  will  be  most  beneficial.  If  our  coin  then  has  a  definite  name 
and  weight,  we  can  arrange  a  table  of  values  relative  to  gold.  For 
example,  10  silver  yuan  can  be  worth  1  large  gold  coin  and  5  silver 
yuan  can  be  worth  1  small  gold  coin.  We  can  also  coin  fractions  of 
the  unit  and  have  K'oins  of  one,  two,  and  five  tenths  of  that  value. 
Then  we  can  divide  these  up  into  copjxn'  coins  and  have  the  small 
silver  lO-cent  piece  worth  100  cash.  AVe  can  continue  to  use  the  cop- 
per coins  now  in  circulation  and  will  not  need  to  coin  new  ones.  We 
can  add  n(Mv  ones,  however,  of  5,  10,  20,  and  50  cash  value  for  conven- 
ience and  to  accord  with  the  system. 

After  deciding  upon  the  name  and  weight,  Ave  must  consider,  sec- 
ondly, the  amount  of  money  to  be  coined.  p]very  nation  must  have  a 
certain  amount  of  money  in  circulation.  This  depends  upon  the 
number  of  inhabitants  and  their  standard  of  living.  Statistics  show 
that  on  a  conservative  average  Americans  spend  in  (me  month  $15  per 
man.  Frenchmen  spend  100  francs,  and  (lermans  spend  28  marks. 
J'he  Chinese,  according  to  the  experts,  are  an  economic  people,  and  an 
iiverage  of  $2  per  man  is  enough.  That  being  the  ease,  the  coinage 
for  the  whole  country  should  be  limited  to  800  million  dollars,  and 
we  could  at  first  coin  only  a  quarter  of  that  amount,  or  200  million 
dollars.  Of  this  200  million  dollars  15  per  cent  should  be  made  into 
gold  coins  and  the  rest  into  silver  i)ieces.  In  every  $100  there  should 
be  one  gold  coin  of  $10  value  and  one  of  $5  value.  The  remaining 
??S5  out  of  the  $100  should  be  made  into  silver  coins. 

Then,  as  to  the  place  for  the  mint.  All  who  have  given  the  matter 
an}'  consideration  say  tluit  a  central  and  important  i)lace  should  be 
chosen,  and  that  there  should  not  be  a  mint  in  each  ])rovince.  The 
important  matter,  however,  is  the  establishment  of  a  uniform  metliod 
at  the  chosen  mints,  and  not  so  much  that  we  should  have  a  single 
mint.  Russia  foi-merly  had  her  coins  made  in  Germany,  and  several 
countries  at  first  entrusted  the  making  of  their  coins  to  other  nations. 
What  we  want  is  that  tlie  mint  shall  be  in  a  convenient  place,  the  arti- 
sans l)e  skilled  men.  and  that  the  coining  l)e  done  rapidly.  China's 
first  silver  coining  establishment  was  set  up  at  Canton;  then  another 
was  estal>lish  in  Hu])eh,  both  at  the  instigation  of  Chang  Chih-tung. 
Other  provinces  then  followed  suit  and  erected  mints,  putting  out 
coins  with  the  name  of  the  province  stamped  thereon.  Now,  if  a 
change  is  made  and  coins  of  one  kind  only  are  manufactured,  it  is 
still  possible  to  have  branch  mints  in  each  ])rovince  in  order  to  hasten 
the  coinage,  as  wvW  i\<  to  fai-ijitate  getting  the  coins  into  cii'culation. 

The  mixing  of  alloy  mu  t  l)e  done  according  to  the  principles  of 


198       GOLD  STANDARD  IN  INTERNATIONAL  TRADE,   . 

chemistry.  The  mold  must  be  finely  engraved.  The  design  must 
be  decided  ])y  im])erial  decree,  so  as  to  insure  a  uniform  coinage  and 
prevent  counterfeiting,  for  if  the  coin  is  to  be  worth  moi-e  than  the 
actual  amount  of  silver  therein,  counterfeiters  of  the  coin  themselves 
must  be  made  to  suffer  and  not  the  ignorant  users  of  counterfeit 
money.  As  to  deciding  upon  a  design  for  the  coins,  the  Chinese  have 
always  used  the  dragon  as  their  symbol,  and  it  would  be  well  to  stick 
to  it.  Then  the  date  coidd  be  engraved  upon  the  coin,  but  not  neces- 
sarily the  name  of  the  province,  so  that  there  may  be  no  apparent 
difference  in  the  coins  to  outsiders,  and  the  coins  may  have  free  cir- 
culation everywhere.  If  it  is  desired  that  the  coins  of  each  province 
should  have  some  means  of  being  recognized,  some  mark  or  sign  could 
be  made  in  the  design  or  in  a  stroke  of  the  design,  that  the  coin  may 
be  recognized  on  close  inspection  at  the  mint  where  it  was  made. 

The  third  thing  to  be  considered  is  this,  when  the  old  silver  coins 
are  called  in  and  the  new  silver  coinage  decided  upon,  all  coining  of 
the  old  kind  must  l)e  stopped  and  the  old  money  be  taken  in  by 
degrees  for  recoining.  The  output  of  the  new  coinage  will  then 
increase  daily  and  its  use  also  be  extended  day  by  day.  F'or  the  first 
few  years,  in  taking  back  the  old  coins,  the  Governm'ent  can  not  but 
give  the  full  market  value  of  the  same,  in  order  to  give  the  people 
assurance  in  the  matter;  but  after  ten  or  more  years  the  coins  can  be 
bought  at  the  rate  of  ordinary  silver  and  it  will  not  be  necessary  to 
consider  them  at  their  coin  value.  Moreover,  the  new  coins  will  be 
92  per  cent  pure  silver,  and  the  remaining  8  per  cent,  which  will  be 
alloy,  will  be  the  nation's  just  seigniorage,  so  that  the  more  money  we 
coin  the  more  of  this  surplus  Avill  we  obtain.  With  this  surplus  the 
Government  can  not  only  pay  its  debts  and  the  cost  of  coinage,  but 
it  can  also  store  up  its  gold  reserve.  If  all  the  800  million  dollars 
are  coined,  the  surplus  will  amount  to  (M  million  dollars.  Such  a 
system  must  i^revent,  as  it  does  in  other  countries,  the  importation  of 
foreign  coins  for  domestic  use,  and  the  deserved  seigniorage  will  then 
revert  to  the  country  making  the  coins  and  can  not  be  taken  away  by 
foreigners.  As  China  heretofore  had  no  fixed  coinage  system,  she 
was  forced  to  make  use  of  the  Mexican  dollar  and  the  seigniorage 
went  into  foreign  pockets  and  became  an  excessive  drain  upon  China's 
w^ealth,  although  there  are  but  few  people  in  the  country  who  realize 
the  extent  of  the  injury.  Then,  too,  China  is  now  in  close  connection 
with  other  nations  by  railroad  and  steamship,  and  if  we  do  not  soon 
take  measures  to  i)revent  it,  it  will  not  be  Mexico  alone  who  is  lying 
in  wait  to  encroach  upon  our  sovereign  rights.  For  this  reason  tlie 
adoption  of  a  new  system  should  be  pressed  the  more  vigorously. 

Koiiithly,  we  must  consider  from  whence  is  the  capital  coming 
with  which  we  are  to  start  the  new  coinage.  AMien  a  nation  starts  a 
new^  monetary  system,  it  first  decides  upon  the  amount  of  money  to 
be  coined,  then  it  decides  upon  the  time  of  initting  the  new  coins  into 
use.  In  the  meantime  while  the  amount  of  money  coined  is  insuffi- 
cient and  tlie  time  for  beginning  its  use  has  not  arrived,  it  is  evident 
that  the  old  silver  still  in  circulation  and  the  gold  and  silver  in  use  in 
trade  can  not  be  included  in  the  capital  for  the  new  coinage.  A\niere, 
then,  have  we  all  the  necessary  money  stored  away?  When  a  nation 
starts  a  new  aybtcni  of  cuiiiuge,  do  they  not  always  count  upon  bor- 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.        199 

rowing  the  moiiev  first?  With  two  indemnities  on  her  hands  ah-eady, 
it  is  assuredly  not  easy  for  China  to  speak  of  borrowing  money;  hut 
to  borrow  moneyl  for  a  coinage,  when  the  money  will  stay  right  within 
the  country,  is  a  transaction  which  will  benefit  the  country;  it  is  not 
in  any  way  like  borrowing  money  to  pay  debts,  where  the  money  goes 
into  the  hands  of  another.  Now  the  coilis  for  such  a  great  system  as 
this  can  not  all  be  made  in  a  day,  and  we  should  first  decide  liow  large 
a  loan  we  wish  to  make  and  then  borrow  a  certain  portion  each  year, 
borrowing  only  as  much  as  we  can  coin,  and  thereby  reducing  the 
amount  of  interest  we  must  pay.  So,  if  we  decided  to  coin  SOO  mil- 
lion dollars,  we  can  divide  it  up  and  first  borrow  15  million  dollars 
gold,  and  with  this  amomit  buy  .'50  million  ounces  of  silver  bullion. 

With  this  we  can  coin  more  than  'M)  million  dollars,  and  with  the 
new  coins  buy  silver  bullion  again.  Thus  we  can  buy  and  coin,  l)uy 
again  and  coin  again,  and  so  on  in  an  endless  circle,  gradually  making 
up  the  whole  amount  decided  upon  to  be  coined.  But  in  making  this 
loan  we  shouhl  consult  with  the  prominent  business  men  of  the  vari- 
ous nations,  and  not  drag  the  nations  themselves  into  the  atfair,  for 
merchants  are  always  solicitous  for  the  security  of  their  interests, 
and  will  necessarily  desii-e  that  China  have  no  setbacks,  but  be -at 
peace.  The  (lovernments  themselves,  however,  secretly  wish  us  to 
have  trouble  and  to  become  involved.  Therefore  a  commercial  citizen 
thoroughly  ac(iuainted  with  financial  atfairs  should  be  selected  and 
appointed  by  the  throne  to  proceed  as  a  special  deputy  to  the  dift'erent 
great  nations  and  investigate  the  whole  question  thoroughly,  discuss- 
ing the  matter  with  the  prominent  business  men  and  financiers  of  the 
world.  At  the  same  time  he  can  inquire  into  the  business  methods  of 
the  various  countries  and  look  for  an  opportunity  to  make  the  loan. 
But  he  must  not,  by  any  means,  borrow  through  the  officials  of  any 
country  or  allow  any  foreign  Government  to  huve  any  interest  in  the 
loan.     This  is  an  important  matter  which  must  be  managed  with  care. 

Fifthly,  let  us  consider  the  matter  of  putting  the  new"  coins  into 
cinndation.  This  is  a  matter  which  rests  entirely  with  the  Govern- 
ment. A^^len  the  Government  has  decided  upon  the  date  upon  which 
to  put  the  new  coins  into  circulation,  they  should  pay  all  the  officials' 
salaries  and  soldiers'  remunerations,  etc.,  in  the  new  coins.  If,  at 
first,  the  usage  in  the  general  market  is  not  extensive,  then  the  Gov- 
ernment can  make  regulations  requiring  that  the  new  coins  be  used 
in  making  payments  due  the  Government.  "NAHien  the  provinces 
send  in  (heir  i-eturns  they  should  l)e  required  to  send  them  in  the  new 
currency.  The  customs  offices  should  accept  no  duties  unless  paid 
according  to  the  new  system.  Thus  it  can  be  pressed  upon  the  people 
gradually  until  in  each  province  it  can  be  made  a  rule  that  all  col- 
lections, etc.,  above  a  certain  sum  must  all  be  paid  in  the  new  coins. 
'When  the  pojiulace  sees  the  great  advantage  of  the  new  system,  how 
easily  it  is  reckoned,  and  hoAv  it  puts  a  stop  to  the  ''  squeeze  "  of  the 
various  kinds  of  money  sharks,  will  they  not  realize  what  a  nuisance 
the  old  system  was  and  gladly  adoj)t  tlie  new  one?  The  eastern  and 
southern  provinces  favored  the  use  of  the  Mexican  dollar  for  these 
very  reasons,  and  the  longer  they  used  it  the  further  its  use  spread. 
Suppose  some  one  says  that  the  new  coin  is  not  really  worth  its  face 
value  and  hence  it  ib  not  to  be  expected  that  the  people  will  take  any 


200  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

stock  in  it.  Just  let  such  a  person  know  that  the  old  silver,  though 
full  weight,  will  not  purchase  goods  in  the  market,  whereas  the  liew 
coins,  although  they  are  only  92  per  cent  pure,  are  current  everywhere 
and  that  tliis  is  the  case  because  the  authority  to  put  a  new  coin  into 
circulation  and  to  put  a  stop  t^o  an  old  one,  rests  with  the  Government 
alone. 

Lastly,  we  must  make  the  peo])le  have  faith  in  the  new  system ;  the 
people  of  China  as  well  as  the  people  of  foreign  nations  must  have 
confidence  in  it.  Your  servant  has  already  discussed  the  subject  of 
how  we  should  give  oui-  own  people  confidence,  and  now  as  to  the 
people  of  other  countrries,  "When  the  new  system  is  put  into  opera- 
tion, we  should  take  the  gold  we  have  borrowed  and  deposit  it  among 
the  various  foreign  banks,  thereby  letting  all  nations  know  that  we 
have  some  gold  in  reserve.  A  statement  should  be  made  of  the  money 
taken  in  and  the  outi^ut  of  the  mint  each  year,  and  this  statement 
should  be  forwarded  to  the  foreign  ministers  in  Peking.  This  is  also 
in  harmony  Avith  the  general  method  in  other  countries.  It  is  evidence 
of  the  way  in  which  things  are  being  done,  it  clears  away  all  suspicion 
of  fraud,  and  it  insures  trust  in  us  throughout  all  the  world.  If  the 
reports  of  the  Chinese  imperial  customs  were  not  published  in  this 
way  each  year  and  distributed  at  home  and  abroad,  who  Avould  put 
any  faith  in  that  system  ? 

The  above  six  suggestions  for  a  monetary  plan  are  merely  what  your 
servant  has  gathered  from  time  to  time  from  foreign  books  treating 
of  methods  of  financial  administration.  They  comprise  what  he  has 
seen  and  heard  in  his  travels  of  the  last  ten  or  twelve  years  in  Europe 
and  America,  as  applied  to  the  present  situation  in  which  China  finds 
herself  in  relation  to  other  nations.  The  whole  matter  shows  lack  of 
extensive  investigation  and  thought  upon  the  subject  of  the  best 
course  for  the  nation  to  ])ursue  in  its  effort  to  decide  upon  a  firm 
financial  policy.  As  to  building  up  the  wealth  of  the  country  and 
establishing  special  schools  upon  these  subjects  for  the  benefit  of 
future  days,  these  matters  are  certainly  worth  early  consideration  or 
else  this  will  be  another  case  like  the  Chinese  customs  which  has 
brought  us  ridicule  because  it  has  long  been  managed  by  foreigners 
and  still  no  one  has  come  forward  Avho  is  able  to  take  over  the  work. 

The  plan  I  have  suggested  would  be  a  method  of  constant  self-- 
protection  and  a  never-ending  benefit.  In  that  the  TTnited  States 
commissioner,  Mr.  Jenks,  (who)  is  now  coming  to  China,  it  is  my 
humble  opinion  that  the  Throne  should  appoint  some  high  offi- 
cial thoroughly  versed  in  financial  matters  to  confer  with  him  on 
these  im])ortant  international  financial  (piestions.  As  the  day  of 
Mr.  Jenks's  arrival  is  near,  T  have  used  what  little  al)ility  I  ])()ssess 
in  composing  this  memorial,  displaying  as  little  ignorance  as  possi- 
ble, in  the  hope  that  the  official  who  shall  receive  such  appointment 
may  find  some  matters  that  may  be  useful.  I  humbly  beg  that  the 
Tlirone  will  decide  whether  or  not  my  suggestions  are  practicable, 
but  I  greatly  fear  lest  they  ])rove  to  be  of  no  use. 

In  view  of  the  fact  that  the  Uuited  States  M(metary  Connnissioner 

will  shoi'tly  arrive  in  China  to  investigate  the  coinage  question,  yoiii* 

humble  sei-vant   has  v.ith  all   i]\n\  respect   j)repared   this  very  slight 

ontribiitiou    in   the   foiMu   of  a   memorial,   which  he  craves  may   be 

viui  the  favor  of  the  Imjierial  glance. 


GOLD    STANDARD    IN    INTERNATIONAL    TRADPL  201 

(b)  Mkmoriai,  ()|-  the  Doard  oI''  Revenue  in  re  Sale  ok  OI'Tki:  to  R mse  Funds 

FOR  A  (tOld  Reserve. 

We  have  luadc  fiirthci-  invest igat ion  of  the  su<>'ji'estions  snlmiitted 
by  Tin  AW'i-to.  the  minister  to  IJnssia.  in  his  nicniorial  on  the  reform 
of  the  currencv.  in  which  he  asks  that  ijohl  coins  may  be  issued  in 
aihlition  (to  silver).  His  report  as  to  the  advanta^-es  and  disadvan- 
tai>"es  is  very  thorpui>'Ii.  Kecently  tliere  have  been  numerous  discus- 
sions of  the  hnancial  aihninistration  whicli  have  snggested  that 
China  ouijht  to  coin  o-ohl  to  relieve  the  situation  cansed  by  the  depre- 
ciation of  silver.  We.  your  ministers,  have  taken  pains  to  investi- 
gate the  snbject  very  carefully,  and  find  that  at  present  all  the 
nations  on  the  irlobe,  except  China,  have  a  gold  coinage;  that  gold  is 
dear  and  sihcr  cheap,  and  that  on  this  account  trade  sntfers  mnch 
injury,  and  that  without  the  coinage  of  gold  it  will  be  impossible  to 
prevent  it;  but  a  sujiply  of  gold  nnist  first  be  obtained  before  there 
can  be  a  gold  coinage.  When  Japan  was  about  to  adopt  a  gold  coin- 
age, she  first  colh^cted  gold  for  ten  years  l)efore  proceeding  to  mint  it. 
A  great  deal  of  gold  is  hoarded  by  the  Chinese  people,  and  simply 
because  the  government  does  not  use  it,  it  is  unnecessarily  wasted  in 
the  manufacture  of  gold  vessels  and  ornaments;  besides  not  a  little 
in  recent  years  has  been  exported  to  other  countries.  It  becomes  very 
necessary,  therefore,  to  adopt  some  method  to  secure  a  reserve  of 
gold  which  may  meet  the  demand  for  minting  purposes. 

As  to  this  matter  we  find  that  the  memorial  of  the  bureau  of 
national  administration  has  already  received  the  sanction  of  th^ 
Throne,  and  is  to  the  eti'ect  that  they  propose  that  jjersons  who  Avish  to 
])urchase  restoration  to  lost  rank  and  those  who  desire  to  purchase 
promotion,  as  well  as  those  who  want  to  be  advanced  on  the  list  of 
expectants  by  making  subscriptions  and  thus  secure  the  right  to  an 
earlier  appointment  to  fill  a  vacancy,  shall  be  required  to  pay  one-half 
of  the  sums  respectively  recpiired  in  gold,  Treasury  standard,  at  the 
rate  of  1  ounce  of  gold  for  ;>2  ounces  of  silver;  that,  as  to  the  applica- 
tion of  the  rule,  as  those  who  are  to  purchase  restoration  to  rank  are 
to  be  jDermitted  to  purchase  only  the  former  rank  and  nothing  above 
it,  they  still  more  ought  not  to  be  allowed  to  ])urchase  the  right  to 
return  to  the  particular  post  formerly  held,  and  that  the  privileges 
accorded  under  this  rule  are  not  to  be  allowed  in  cases  in  which 
removal  has  been  for  comparatively  serious  offenses;  that  in  the  case 
of  those  who  have  never  had  official  aj^pointments  an(T  desire  to  send 
in  large  sums  of  money,  they  ought  first  to  re})ort  at  the  board  of  reve- 
nue, which  should  take  the  matter  into  consideration  and  fix  the 
amount  to  be  paid  (for  the  rank),  all  to  be  ])aid  in  gold,  after  which 
the  board  should  re(|uest  an  edict,  and  if  the  Imperial  sanction  should 
be  given  the  board  of  revenue  should  then  receive  the  gold. 

It  seems  to  us  that  by  agreeing  to  the  proposal  under  these  restric- 
tions it  may  perhaps  be  possible  to  accmnulate  the  gold. 

As  in  duty  bound  we  have  prepared  this  supplementarj'^  report  and 
respectfully  submit  it,  humbly  praying  the  favor  of  the  Impei'ial 
glance. 

Imperial  rescript  received :  "  Let  it  be  as  proposed." 

"  Respect  this." 


202       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

(c)  Memorial  or  the  Financial  Commission  in  ke  Establishment  of  a 

National  Bank. 

This  memorial  proposing  that  the  board  of  revenue  should  make 
trial  of  a  national  bank  so  as  to  facilitate  the  circulation  of  silver  coins 
and  thns  aid  the  financial  administration  and  increase  the  sources  of 
wealth,  is  reverently  submitted,  with  a  prayer  for  the  favorable  con- 
sideration of  your  majesties. 

Some  time  since,  we,  your  ministers,  presented  a  memorial,  sng-- 
oesting-  that  a  mint  should  be  established  at  Tientsin  for  the  coinage 
of  silver.  The  erection  of  the  l)uildings  has  already  been  begun,  and  as 
soon  as  the  macliinery,  which  has  been  purchased,  shall  arrive,  mint- 
ing will  at  once  begin,  and  thus  form  the  commencement  of  the  reform 
of  the  financial  administration;  but  the  pnrpose  in  this  present  coin- 
age is  by  a  reform  of  the  monetary  system  to  secure  the  general  cir- 
cnlation  of  the  coins,  to  call  in  the  silver  sycee  heretofore  used  and 
gradnally  coin  it,  as  well  as  to  issue  paper  money  and  to  coin  gold. 
The  important  factor  in  this  arrangement  will  be  the  use  of  the  money 
b}^  the  treasury  in  receipts  and  payments,  and  it  becomes  more  than 
ev'er  necessary  to  establish  a  l)ank  to  aid  in  the  circulation;  only  so 
can  the  scheme  be  put  into  operation  without  hindrance.  Heretofore 
China  has  had  no  bank;  althongh  the  institutions  which  issue  notes 
and  the  cash  shops  established  by  wealthy  persons  in  all  the  provinces 
are  of  the  same  character  as  banks,  yet  no  Imperial  bank  has  ever 
been  established  to  form  a  bond  of  union  among  them,  and  thus  it  has 
been  impossible  to  depend  upon  them  in  distributing  the  (xovernment's 
surplus  or  making  up  its  deficit.  This  condition  of  affairs  has  long 
been  comprehended  by  your  majesties. 

Some  time  ago  the  expectant  metroi)olitan  official  of  the  fourth 
bank,  Mr.  Chang  Yu-nan,  of  Canton,  requested  permission  to  raise 
shares  among  the  Chinese  merchants  of  the  south  and  establish  a  mer- 
cantile bank  in  Peking,  and  requested  that  the  treasury  might  be  in- 
structed to  contribute  part  of  the  capital  stock.  Your  ministers  also 
memorialized  recommending  the  approval  of  the  scheme,  as  the  files 
will  show.  But  the  aforementioned  gentleman  has  gone  to  the  south  to 
raise  shares  to  carry  the  plan  into  operaticm  and  has  fixed  no  date  for 
the  commencement  of  th(>  enterprise,  and  the  time  has  now  come  for 
the  reform  of  the  monetary  system,  and  the  establishment  of  a  bank 
to  promote  the  circulation  of  the  coins  is  a  matter  of  urgent  impor- 
tance. Your  ininisters  have  consulted  together  frequently  about  the 
matter  and  now  propose  that  the  board  of  i-evenue  shall  first  take  steps 
to  accumulate  the  necessary  capital,  examine  the  regulations  of  the 
various  foreign  banks  and  select  such  as  are  suitable,  giving  careful 
consideration  to  the  various  advantages  and  disadvantages,  and  pro- 
ceed to  o])erate  a  bank  experimentally,  that  it  may  furnish  the  neces- 
sary channels  for  the  circulation  of  the  coinage.  The  detailed 
I'egulations  will  l)e  drawn  up  and  submitted  in  a  memorial  by  the 
l>oard  of  i-evenue. 

Youi-  ministers  respectfully  submit  this  memorial  stating  the  rea- 
sons why  the  I)()ard  of  revenue  should  make  experimental  trial  of  a 
bank,  praying  that  your  Tm])erial  majesties  will  consider  and  decide 
whethei-  or  not  the  scheme  should  be  put  into  operation.  This  memo- 
rial was  submitted  on  the  28th  of  the  First  Moon,  XXX  year  of 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 


203 


Tvuano'-lisu.  mid   an   imperial   rescript   issued  saying:  "  Let    it   he  as 
proposed."' 

"  Respect  this."" 

:;.  EXTRA("r  from  report  on  the  foreign  trade  of  china 

FOR   THE   year    liK).",.    BY    MR.    J.    W.    .TAMIESON,    COMMERCIAL    AT 
TACHl?],  TO   HIS   MAJESTY'S   LEGATION    IN   PEKING. 

[No.  .^280.      Auiiiial  series.      Uefei'etice  to  previous  report.  Annual  Series  No.  SOVt^.] 
I  Shanarhai,  .Tuly  0,  1!MM  ;   received  at  foreign  office  August  1.5,  1904.1 

The  average  rate  oi'  exchange  for  the  Haikwan  tael  in  1908  was  1.8 
per  cent  higher  than  in  1002,  and  the  chart  will  serve  to  illustrate  the 
tortuous  course  it  pursued  in  its  progi;ess  upward.  For  the  first  six 
months  the  average  rate  worked  out  to  2s.  Gd.,  against  ^s.  9|d.  for  the 
last  six  months,  a.  difference  of  \0l  per  cent,  with  quotations,  as  a 
rule,  below  the  parity  of  silver. 


J903. 

Value  of- the  lael 
in  5ter/in^.          ^ 

t  ■  1 

c 
^ 

1 

June 



July. 

^ 
^ 

1 

Oct 
Nov. 

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P/^         ^     ^ 

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"^7    \ 

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t, 

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5^/_-      J 

^/7           j4  -        " 

-\r- 

2/»            ^*-        - 

wa 

CHANGE    OF    STANDARD. 

On  January  22,  1903,  the  Chinese  charge  d'affaires  handed  to  the 
Secretary  of  State  at  AVashington  a  note,  accompanied  by  a  memoran- 
dum, whei-ein  the  Chinese  Government,  acting  in  concert  with  the 
Mexican  Govei-nment,  invited  the  cooperation  of  the  United  States  in 
seeking  some  remedy  for  the  serious  losses  inflicted  on  the  commerce 
of  both  gold  and  silver  standard  countries  by  fluctuations  in  the  value 
of  silver  bullicm. 

This  note  was  preceded  by  one  couched  in  similar  terms,  addressed 
to  Mr.  Ilay  by  the  Mexican  ambassador  on  Jaiuiary  15,  and  on  Janu- 
ary 29  President  lioosevelt  transmitted  to  the  Senate  and  House  of 

"Acting  iiiuler  the  aforementioned  memorial,  approved  by  the  Emperor,  cer- 
tain bank  regulations  were  drafted  and  an  official  desij^nated  to  secure  private 
subscriittions  to  the  capital  stock  of  a  new  bank.  Alter  several  weeks  spent  in 
explanations  to  ])usiiiess  men  by  the  olticial  no  subscriptions  were  secured,  and 
the  project,  in  the  t)rigiii:il  form,  at  least,  seenu-d  to  be  abandoned  when  the 
American  commissioner  left  China  in  September,  1904. 


204       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

Representatives  a  message  recomn  lending  "  that  the  Executive  be 
given  sufficient  powers  to  lend  the  support  of  the  United  States  in 
such  manner  and  to  such  degree  as  he  may  deem  expedient  to  tlie  pur- 
poses of  the  two  Governments."' 

Acting  thereon,  both  Houses  of  C()iigress  passed  an  appropriation, 
enabling  the  President  to  cooperate  with  the  Governments  of  Mexico, 
China,  and  other  countries  for  the  purpose  set  forth  in  the  message, 
and  a  commission  of  international  excliange,  consisting  of  Mr.  H.  H. 
Hanna,  Mr.  C.  A.  Conant,  and  Prof.  Jeremiah  W.  Jenks,  was  ap- 
])ointed.  The  Mexican  (lovernment  a]ii)ointed  two  commissions,  one 
to  make  careful  examination  of  local  conditions  in  the  City  of  Mexico, 
the  other  to  procure  an  understanding  with  other  interested  countries 
as  to  the  best  means  of  carrying  out  ti)e  end  in  view. 

The  Mexican  and  United  States  conmiissions  then  approached  the 
leading  powers  having  commercial  and  financial  relations  with  silver- 
using  countries,  and  after  their  approval  of  the  principle  involved 
had  been  secured.  Professor  Jenks  came  on  to  China  to  lay  the  com 
mission's  proposals  before  the  Tmjierial  Government,  and  to  make 
arrangements  with  regard  to  the  practical  steps  to  be  taken  to  place 
China's  currency  on  a  gold  basis. 

He  has  of  late  been  engaged  in  interviewing  the  high  authorities  of 
the  metropolis  and  the  provinces,  and  has  been  greatly  encouraged  by 
their  sympathetic  attitude.  It  is  open  to  question,  however,  whether 
the  able  representations  of  the  learned  professor  in  person,  or  his  lucid 
explanatory  statement  in  writing,  have  really  enabled  those  addressed, 
who,  it  has  to  be  remembered,  are  Avithout  any  previous  training  in 
the  science  of  economics,  to  grasp  in  all  its  bearings  a  complicated 
problem  which  has  peridexed  financial  ex])erts  for  years. 

The  lines  on  which  it  is  sought  to  bring  about  an  amelioration  of 
existing  conditions  are,  as  expressed  by  Sir  Robert  Hart,  such  as  will 
insure  a  uniform  exchange  between  gold  and  silver,  eliminating  all 
danger  of  uncertain  fluctuations  while  permitting  China  to  retain  a 
silver  currency,  and  the  American  Commission  consider  that  in  start- 
ing the  new  system,  the  wiser,  and  in  the  end  the  easier  plan,  would  be 
to  introduce  new  coins,  silver  and  copper,  t)n  a  gold  basis,  and  from 
the  beginning  to  maintain  them  at  a  parity  with  '^  a  standard  unit  of 
value,  not  necessarily  coined,  consisting  of  a  fixed  number  of  grains  of 
gold  of  a  fixed  degree  of  fineness,  api)r<)\imating  to  the  monetary  unit 
of  a  country  with  which  China's  connnercial  relations  are  close  and 
increasing." 

The  bullion  value  of  the  current  silver  coin  representing  this  unit 
should,  it  is  sugg<'sted,  be  10  or  15  pei-  cent  less  than  the  parity 
value.  To  maintain  it  and  its  subsidiary  uuits  on  a  parity  with  gold, 
the  princ'q^al  measures  reconnnended  are  the  following:  (1)  Sti'ict 
limitation  of  the  amount  of  coinage  and  absolute  governmental  con- 
trol thereof;  (2)  a  normal  steady  demand  on  the  i)art  of  ( Jovei-iunent 
for  this  coin  and  a  i-eadiness  to  receive  it  for  })ayments  due  to  them; 
(8)  making  the  coin  legal  tender  in  ])ayment  of  i)rivate,  as  Avell  as 
of  public  debts;  (4)  an  agreement  on  the  j)art  of'  (Jovernment  to 
redeem  the  silver  coin  by  the  payment  of  gold,  practically  on  demand. 

Foi-  the  satisfaction  of  all  ])roper  business  needs  it  is  held  to  be 
suflicient  if  the  Chinese  Government  keej)  a  gold  credit  in  Europe, 
against  which  they  could  sell  bills  of  excliMnge  whenever  a  legitimate 
market  demand  arose. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.        205 

T\\v  noccssity  of  iiiiikin<i'  i)r()\isi<)ii  ;i(  tho  outset  for  tlic  accmiiiila- 
tion  of  i\  liold  ivs(M-vc>,  which  will  sullice  at  all  times  to  maintain  the 
l)ai-itv  of  the  new  coins,  is  stronii'ly  insisted  ui)on.  To  the  ([uestion. 
"How  may  this  nold  reserve  be  accumulated? ''  the  commission 
answer:  (1)  That  on  silver  coins,  substantially  ecjual  in  value  to  the 
Japanese  yen,  at  the  present  price  of  silver,  there  would  be  a  profit 
from  seiirnioratje  of  some  8  to  12  per  cent,  and  that  the  profit  on 
minor  subsidiary  coins  would  be  much  ijcreater,  which  ])rofits  would 
all  have  to  be  emi)loyed  in  purchasing:  (>-old.  (2)  That  the  saviufj 
cH'ccted  by  any  concession,  such  as  the  postponement  of  redemption 
in  liold  granted  by  the  treaty  i)owers  in  respect  of  indenmity  bonds, 
would  have  to  be  devoted  exclusively  to  the  requirements  of  the  new 
monetary  system.  (3)  That  if  the  scheme  is  to  be  carried  through 
l)rom])tly  in  the  most  imjwrtant  trade  centers,  gold  to  a  considerable 
extent  must  be  borrowed  against  the  security  of  certain  specific  reve- 
nues, and  that  the  jn'ocecds  of  this  loan,  part  of  which  might  simply 
take  the  form  of  a  gold  credit,  to  be  drawn  against  as  circumstances 
called  for,  nuist  l)e  i)laced  on  deposit  in  Europe  and  America. 

After  the  establishment  of  the  reserve  provision  must  naturally 
bi'  uuide  for  its  replenishment,  and  this  might  be  done  by  means  of 
an  agreement  on  the  part  of  the  controller  of  the  currency  in  China 
to  honor  sih^er  drafts  drawn  against  the  Chinese  Government  by  its 
agents  abroad  in  exchange  for  gold  de|50sited  in  the  fund.  It  might 
also  be  possible  to  obtain  supplies  by  an  exploitation  of  the  gold  mines 
within  the  Empire. 

An  issue  of  bank  notes  payable  in  the  new  currency  is  also  contem- 
plated, and  is,  in  fact,  essential  in  order  to  impart  elasticity  to  the 
system. 

It  docs  not  appear  that  in  the  new  scheme  due  weight  has  been  given 
to  the  claims  for  consideration  which  might  be  set  up  by  the  domestic 
trade  of  the  countiy.  I'he  area  of  the  IS  provinces  equals  that  of  the 
whole  continent  of  Europe,  less  Russia,  the  Balkan  States,  Turkey, 
and  Greece,  and  the  trade  carried  on  among  themselves  by 
348,000,000  of  people,  is  by  no  means  one  to  be  left  out  of  account. 
So  largely,  however,  looms  the  injury  to  the  foreign  trade  in  the  eyes 
of  the  currency  reformer,  and  so  imperative  appears  to  him  the  neces- 
sity of  Chiiui's  meeting  her*  foreign  obligations  in  gold,  that  in  the 
scheme  as  it  stands  native  trade  has  been  treated  as  practically  non- 
existent. It  is  dismissed  in  one  short  sentence,  which,  while  acknowl- 
edging that  a  national  silver  currency,  not  on  a  parity  with  gold, 
would  be  very  advantageous  to  the  internal  trade  of  the  country,  goes 
on  to  state  that  the  inq)ort  and  export  trades  would  be  helped  directly 
in  no  way  by  such  a  system,  inasmuch  as  the  only  benefits  which  the 
trade  with  foreign  countries  could  exi)ect  to  reap  Avould  be  indirect 
ones  arising  out  of  an  expansion  of  domestic  trade.  In  the  course  of 
the  discussion  which  took  place  between  the  connnissicms  of  the 
United  States  and  ^Mexico,  the  former  handed  to  the  latter  a  memo- 
randum dated  April  18,  1J)03,  reviewing  the  statistics  of  the  foreign 
trade  of  Mexico  inward  and  outward.  It  was  therein  sought  to 
demonstrate  that  the  fall  in  tiie  gold  price  of  sih'er  had  inflicted  on 
Mexico  a  very  considerable  economic  loss,  inasnuich  as  it  appeared 
that  on  the  one  hand  a  gi>'en  amount  of  gold  purchased  fewer  foreign 
products  than  in  former  years,  while  on  the  other  hand  Mexican 
products  were  l)eing  dis})osed  of  in  increasing  ([uantities  at  prices 
which,  converted  into  gold,  showed  no  advance  Avhatever. 


206 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE, 


To  illustrate  the  argument  a  series  of  fig'ures  was  addueed  com- 
paring the  gold  prices  of  imports  and  exports  in  the  years  1893  and 
1902.  and  in  order  to  ascertain  to  what  extent  China  has  suffered 
from  the  same  cause,  the  figures  of  her  foreign  trade  might  be  sub- 
mitted to  a  similar  process  of  investigation.  The  results,  however, 
can  only  afford  approximate  indications,  as  the  system  of  valuation 
adopted  by  the  Imperial  Maritime  Customs  has  hitherto  been  far 
from  perfect,  and  the  data  for  an  extended  comparison  are  for  various 
reasons  by  no  means  complete. 

The  following  table  gives  the  values  in  silver  and  in  gold  of 
China's  exports  since  1883,  and  shows  an  increase  .in  the  course  of 
those  20  years  of  205  per  cent  in  silver  and  of  43.5  per  cent  in  gold, 
accomi)anied  by  a  decline  in  the  gold  price  of  silver  of  53  per  cent. 
In  the  first  decennial  period  the  rises  were  C6  and  27  per  cent,  respec- 
tively, and  the  fall  about  30  per  cent : 

Market  value  of  exports  from  China  {excluding  treasure). 


Year. 

Value. 

Rate  of 

Currency. 

Sterling. 

change. 

1883 

Haikwan  taels. 
70,197,700 
93,401,1(J0 
116,633,310 
138,504,520 
143,293,210 
131,081,420 
163,501,360 
159,037,105 
195,784,830 
158,996,750 
169,656,760 
214,181,585 
214,352,470 

£19,669,980 
21,7a5,020 
22,961,9a5 
30,483,370 
3:3,434,410 
31,846,905 
24,254,890 
23,944,420 
39,469,695 
24,667,630 
25,0a5,060 
37,843,605 
28,245,225 

s.    d. 
5    7J 

1888                          

4    8| 

1893 

3  Hi 

1894                                                                         

3    2} 

1895                                                 

3    3i 

1896 - 

3    4 

1897 - 

2  11} 

1898                                                           -  

3  10* 

1899                   .            .               - 

3    0* 

1900                         --- 

3    1} 

1901 

2  lU 

1903                                             

2    7i 

1903 - 

2    7| 

The  question  now  arises,  have  the  quantities  of  Chinese  produce  sent 
abroad  corresponded  with  the  rise  in  the  total  silver  value,  or  have 
higher  silver  prices  obtained  for  exports  contributed  toward  the  main- 
tenance of  their  gold  value? 

To  assist  in  determining  this  jxjint,  examination  has  been  made  of 
the  (juantities  and  values  of  certain  staple  exports  in  the  years  1893 
and  1903.  The  four  articles  selected — tea,  silk,  bean  products,  and 
raw  cotton — constituted  GG  per  cent  of  the  total  A^alue  of  exports  in 
1893,  and  58  per  cent  of  the  total  value  of  exports  in  1903,  and  the 
difference  between  the  gold  price  of  silver  in  1893  and  in  1903 
amounted  to  about  33  per  cent. 

Table  shoiving  quantity  and  vahie  of  certain  staple  articles  of  export  during  the 

years  1893  and  1903. 


Quantity  exported. 

Gold  value. 

Increase  or 
decrease. 

Value  per 
unit. 

Articles. 

1893 

1903 

1898 

1908 

Quan- 
tity. 

Value. 

1893 

1903 

Silk pounds.. 

Tea do. 

Beans  and   lieanc^ako. 

24,038,667 
342,777,500 

2,;J41,988 

30,839,467 
22;i,  67(1, 670 

7, 1(55,. 582 

£7,50:5,740 
6,016,348 

.     496,533 
1,3W,967 

.£9,789,155 
:j,  469, 975 

1,438,900 
1,751,840 

Per  ct. 

+  28 

-    7.8 

+206 
+  31.8 

Per  ct. 
+  30.4 
-  46 

+188 
+  44.3 

£  s.d. 
0    6  3 
0    0  5.9 

0  4  3 

1  15  5 

£  s.  d. 
0    64 
0    0  3.7 

0    4  0 

Raw  cotton do... 

685,892 

fl(M,190 

1  18  9 

GOLD  STANDARD  TN  TNTERNATION AL  TRADE. 


207 


CoiHjKitiiiij  the  (lUiintitios  of  IWA  at  tlio  unit  price  in  trold  of  189:3, 
a  loss  of  £1,S1('),7()0,  or  at  the  rate  of  nearly  10  per  cent,  appears  to 
have  been  sustained.  But  it  has  to  be  borne  in  mind  that  the  fall 
of  -'38. 7  per  cent  in  the  price  of  tea  was  due  to  causes  other  than  those 
influencing;  the  price  of  silver,  and  that  had  this  article  been  elim- 
inated from  the  list,  the  fi<»:ures,  instead  of  showing  a  loss,  Avould  have 
shown  a  proHt  of  £i>ll,885: 


Article. 


Silk 

Tea 

Beans  and  beancake 
Raw  cotton 

Total 


Reported 
gold  value. 


16,439,870 


Value  per 
unit. 


£  s. 
0    6 


0    0    3. 


0  4 

1  18 


Gold  value 

at  unit  price 

of  1893. 


£9,634,205 
5, 498,  .570 
l,523,6a5 
1,601,170 


18,356,630 


A  continuation  of  this  process,  applied  to  a  laroer  range  of  exports 
in  the  years  1899  and  1903,  gives  the  following  results  (proportion  of 
total  exports,  74  per  cent  in  1899;  77  per  cent  in  1903;  fall  in  gold 
price  of  silver  between  1899  and  1903,  12.3  per  cent)  : 

Table  shou'ing  quantity  and  value  of  imports  during  the  years  1899  and  1903. 


Articles. 

Quantity  exported. 

Gold  value. 

Increase  or 
decrease. 

Value  per  unit. 

1899 

1903 

1899 

1903 

Quan- 
tity. 

Value. 

1899 

1903 

Silk pound.s 

Tea -do 

Beans  and  bean- 
cake  cwt 

Raw  cotton    do 
Aniseed,  star. lbs 

Bristles do 

Cassia  lignea  .do  . . 

Fans. per  100.. 

Feathers cwt.. 

Hemp tons.. 

Hides ...cwt 

Mats per  100 

Matting rolls 

Musk lbs. 

Nutgalls cwt. . 

Oils: 
Vegetable  .do.. 
Essential...  lbs. 

Rhubarb cwt 

Sesamum  seed .  do . 
Straw  braid . .  lbs . 
Tallow : 

Animal cwt.. 

Vegetable   do. 

Tobacco lbs  . 

Wax.  white,  .cwt. . 

Wool lbs 

Wool,  camel's. do.. 

37,500,400 
317,439,200 

6,323,693 

273,880 

1.4.56.800 

3.7.54.i100 

8.606.7:^1 

,57.093,168 

84,  .554 

9,893 

277.020 

32,033,500 

514.090 

2.  .588 

43,068 

287,810 

.    403,735 

9,493 

2a5.356 
10,603,6(X) 

11,643 

37,9t« 

23.196,300 

6,830 

32,286.9a3 

.5,:^17,200 

«),839,467 
233,670,670 

10,843,840 

9(M,]90 

1.011,867 

5,2'<1,6fl0 

7,143.667 

.55,081,31)6 

69, 774 

10.843 

288.477 

19,0.57,464 

.593,3ft5 

3,:i55 
4.3,5.50 

.500,720 

4fl6,.540 

8.813 

627,490 

10,763,000 

69,267 

131.346 

2],8»;l.2f)0 

5.080 

35, 7.50.  .5:53 

2.381,200 

£13,359,100 
4,736,7:^0 

1.417,6(i7 
448,605 

m.m) 

1()6,.522 

97,6.33 

9:^035 

146,518 

199,197 

.591,421 

207,995 

341,646 

63,a53 

108,694 

308,000 
81.47(1 
25,378 
84,  IfX) 

433, 7a5 

11.553 

:i5.:i.57 

;^7.695 
81,307 

540,490 
82,783 

£9,789,1.55 
3,469,975 

1,428,900 
1,7.51,840 

18,016 
;.'6 1,994 

84.400 

73.436 
136.4.51 
236. 302 
631.704 
140,230 
.545,  .587 

67,668 
100, 1.31 

438,373 

44,4.35 

23,  .572 

267,492 

543,841 

64,887 
148,1.53 
266,837 

27, 187 
326,190 

34,065 

P.ct. 

-  18 
+    3 

4-  71 
+230 

-  .30.5 
+  41 

-  17 

-  3.4 
^  17.5 

+    9.6 
+    4.1 

-  45 
+  15 

-  9 
+    1.1 

+  74 
-t-    0.7 

-  7.1 
+205 
+    1.5 

-t495 
+370 

-  .5.7 

-  26 

-  20.2 

-  .55. 2 

P.  ct. 

-  20.8 

-  26.8 

+    0.8 
+390.5 

-  .50.3 
+  57.3 

-  13.5 

-  31 

-  6.9 
+  13.5 
+    .5.1 

-  .33.6 
+  60 
+    7.3 

-  7.9 

+  39 

-  45 

-  11 
+318 
+  25.4 

+461 

+319 
23.3 
66.6 
39.5 

"  59 

£   X.  d. 
0    6    7 
0    0    .5i 

0  4    5 

1  12    9 
0    0    6 

0    0  10.6 
0    0    2.7 

0  3    3 

1  14    7 
30    3    8 

3    2    8 
0  13  11 

0  13    4 
24    7    3 

2  10    5 

1  2    1 

0    4    0 

2  13    5 
0    8    2 

0  0  10 

1  0    0 
1    5    3 
0    0    3* 

11  19    6 
0    (1    4 
0    0    3.7 

£   s.d. 
0    6    4i 
0    0    3.7 

0  2    7i 

1  18    9 
0    0    4i 
0    1    0 
0    0    2? 

0  2    8 

1  19    0 
20  17    3 

3    3    0 
0  14    8 
0  18    0 
28  14    0 

2  6    0 

0  17    0 
0    2    3 

3  11    0 
0    8    6 
0    10 

0  18    8 

1  3    7 
0    0    3 
5    7    0 
0    0    3 
0    0    .3i 

208 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 


The  conversion  of  the  given  quantities  of  11)();>  at  the  gohl  unit 
price  of  1899  discloses  a  loss  of  £2,492,230,  or  at  the  rate  of  10.65  per 
cent : 


Articles. 


Silk pounds. 

']\  a   do . . . 

Beans  and  beancake cwt. 

Raw  cotton do--. 

Aniseed,  star pound. 

Bristles do... 

Cassia  lii;nea _ do... 

Fans....'; - 100- 

Feathers fwt  . 

Hemp - ton. 

Hides cwt. 

Mats 100. 

Matting ..roll. 

Musk pound- 

Nutgalls cwt- 

Oils: 

Vegetable do . . . 

Essential pound . . . 

Rhubarl) cwt. 

Sesamuni  seed do.  _ . 

Strawbraid pound . 

Tallow: 

Animal cwt . 

Vegetable _ do... 

Tobacco... - pound... 

Wax,  white cwt. 

"Wool ^. pound. 

Wool,  camel's do . . . 

Total -. 


Value  per 
unit. 


£    s.  d. 

0    6  4J 

0      3  7y', 

0  3  7i 

1  18  9" 
0  0  41 
0  10 
0    0  2? 

0  2  8 

1  19  0 
20  17  3 

2  3  0 
0  14  8 
0  18  U 

28  14  0 

2    6  0 


0  17  0 

0    2  2 

2  11  0 

0    8  6 

0    1  0 


0  18 

1  2 
0  0 
5  7 
0  0 
0    0 


Reported 
gold  value. 


£9,789,1.55 

3,469,975 

1,428,9(K) 

1,7.51,840 

18,016 

261,994 

84, 400 

73,436 

136,421 

226,2(12 

621,704 

14(l,;i:5(l 

545,  .587 

67.(iti8 

100, 131 

428,::73 

44,4:^ 

22,572 

267,492 

.54:3,841 

64,887 
148, 1.53 
266, 837 

27, 187 
326, 190 

34,0ft5 


20,889,591 


Gold  value 

at  unit  price 

of  1899. 


£10,148,832 

4,846,197 

2,394,-581 

1,480,611 

25. 297 

233,270 

80,355 

89,507 

120,6.50 

218,286 

615,417 

123,079 

395,576 

57,374 

109,765 

552,878 
81,305 
23,538 

256,225 

448,458 

69, 267 
165,824 
318,809 

60,8aS 
429,175 

36,710 


23,381,822 


Applying  this  percentage  of  loss  to  the  total  value  of  the  exports  in 
1903,  the  deficit  amounts  to  £3,369,800. 

Table  B. — Vost  of  certain  imports  into  China  in  (/old  at  the  prices  ruling  in 

1899  and  1903. 


Cotton  yarn  . 
Plain  cottons 

Sugar 

Kerosene  oil. 

Metals 

Coal 

Total... 


Value. 


1903. 


£8,814,765 
5,525,455 
2,103,320 
2,071,940 
1,993,900 
1,118,570 


21,627,950 


At  Tjrices  of 
1899. 


£8,215,120 
4,896,865 
2, 364, 105 
1,877,046 
1,713,125 

.  1,580,870 


20,647,130 


Percent- 
age of 

change  in 
price. 


+  7.3 
+12.8 
-11.3 
+  10.3 
+  16.3 
-30.7 


+  4. 


Note. — All  values  are  market  values  in  silver,  converted  at  the  average  annual  sterling 
rate  of  the  Il.-iikw.-in  tnel. 

The  gold  value  of  the  above  iin[)orts  represents  50  per  cent  of  the 
gold  vahie  ol"  China's  total  imports  in  1903  (£43,015,415),  and,  apply- 
ing this  ratio  of  rise  in  price  to  the  whole  amount,  China  is  a  loser 
hy  £1,950.755,  at  the  prices  of  190:5.  as  compared  with  those  of  1899. 

Had  a  fall  in  the  gold  prices  of  her  imjiorts  taken  place,  China 
might  have  been  in  a  measure  compensated  for  this  loss,  but,  as  shown 
above,  so  far  from  this  being  the  case,  gold  prices  of  imports  appear 
to  have  risen  and  to  the  previous  loss  has  therefore  to  be  added  the 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.        209 

liirthor  sum  of  £1, 950, T^r),  making  an  a<xnri"t^gato  loss  of  £5,320,555, 
or  at  the  rate  of  7.4  per  cent  on  the  whole  valne  of  her  foreign  trade. 

The  total  weight  of  the  exports  of  li>()3.  compared  with  that  of 
those  of  1883,  shows  nii  increase  of  174  per  cent,  and  compared  with 
that  of  the  exports  of  18!)!),  an  increase  of  11. -28  per  cent."  Curiously 
enough,  this  increase  in  the  })ercentage  of  the  quantities  exported  in 
1908  over  those  of  18!)!)  closely  corresp()n<ls  with  the  percentage  of  loss 
(10.65  per  cent)  shown  to  have  been  snstaiiKMl  by  the  calculation  of 
their  value  in  terms  of  the  gold  unit  price  of  1899. 

Assuming  the  above  to  be  an  accurate  method  of  gauging  the  coun- 
try's economic  gain  or  loss,  the  two  years  cited  atl'ord  an  excellent 
basis  of  comparison,  as  ])rior  to  the  disturbances  of  1900,  18!)9  Avas 
the  most  prosperous  year  China's  foreign  trade  experienced,  and 
although  not  conducted  under  ideal  conditions,  the  trade  of  1903  was 
the  largest  so  far  on  record. 

But  it  is  hardly  necessary  to  point  out  that  changes  in  prices  are 
not  solely  the  result  of  fluctuations  in  the  relative  values  of  gold  and 
silver.  A  variety  of  other  elements  are  contributory  thereto,  and  the 
part  they  may  have  played  in  bringing  abont  the  present  situation 
must  not  be  overlooked.  The  ""  Economist  "  newspa})er"s  total  index 
number,  for  instance,  on  January  1,  1899,  stood  at  1,!)18,  as  against 
2,197  on  January  1.  1!)04. 

While,  i)riina  facie,  this  analysis  of  her  foreign  trade  returns  makes 
it  seem  certain  that  China  has  to  no  small  extent  been  adversely 
affected  by  the  fall  in  the  gold  value  of  silver,  and  provides  an  argu- 
ment in  favor  of  the  introduction  of  remedial  measures  in  the  shape 
of  a  stable  currency  on  a  gold  basis,  the  crucial  jjoint,  deserving  earn- 
est and  careful  attention  is  this:  Would  it  be  consulting  China's  best 
interests,  or  the  contingent  interests  of  those  Avho  trade  with  her,  to 
force  upon  her  i:)rematurely  a  scheme  of  monetary  reform,  which, 
while  holding  out  the  prospect  of  temporary  relief  as  far  as  the  dis- 
charge of  her  foreign  obligations  is  concerned,  might  conceivably  end 
in  subjecting  her  people  to  heavier  taxation,  or  which,  by  seriously 
hampering  her  interprovincial  trade,  might  eventually  curtail  her 
purchasing  capacity? 

That  currency  reform  is  of  vital  importance  and  urgently  called 
for  is  by  no  means  disputed;  the  divergence  of  opinion  arises  as  to 
the  mode  of  carrying  it  into  effect,  and  it  is  yet  again  contended  that 
a  coinage  on  a  silver  basis  must  be  in  actual  circulation  throughout 
the  Empire  before  any  attempt  to  place  it  on  a  parity  with  gold  is 
likely  to  prove  expedient  or  successful. 

In  connection  with  currency,  the  continued  appreciation  of  copper 
cash,  expresed  in  terms  of  silver,  is  worthy  of  note.  It  is  on  the  Cen- 
tral Yangtzu  that  this  grievance  is  more  particularly  felt,  and  the 
ever  increasing  number  of  10-cash  pieces,  turned  out  by  local  mints, 
does  not  seem  to  afford  any  relief.  At  I'chang  the  purchasing  poAver 
of  silver  decreahed  during  the  year  by  6  per  cent,  at  Hankow  by  4  per 
cent,  and  Kiukiang  by  (>  per  cent. 

Another  feature  of  internal  currency  is  the  premium,  alluded  to 
last  year,  on  a  particular  issue  of  Carolus  dollars,  which  in  1903  rose 
to  50  per  cent. 

"  The  articles  retiu-ned  in  units  of  pieces  show  a  decrease  of  16  per  cent. 
S.  Doc.  lliS,  58-3- 14 


210  GOLD   STANDARD    IN    INTERNATIONAL    TRADE. 


IV.  DATA  REGARDING  THE  PRESENT  CURRENCY  IN  CHINA. 

1.  EXTRACTS  FROM  SPECIAL  REPORTS  OF  THE  IMPERIAL  MARITIME 

CUSTOMS. 

(a)   Reports  on   the   Haikwan   Banking    System    and   Local  Currency  at   the 
Treaty  Ports. — V.  Office  Series.     Customs  Papers  No.  12. 

Inspectorate-General  of  Customs, 

Pel'lng,  8th  Decemher,  1877. 
Sir:  I  have  to  request  that  3^011  will  furnish  nie  with  int\)rmation  on 
the  following  points  in  connection  with  the  pa3"ment  of  duties  at  the 
Haikwan  Bank: 

1.  Who  is  the  customs  banker  at  your  port^  Is  he  an  official  or 
engaged  in  traded  What  is  the  staff  employed?  How  is  the  expendi- 
ture provided  for? 

2.  In  what  currency  are  duties  paid  at  your  port?  In  sycee  or  dol- 
lars?    If  the  latter,  at  what  rate,  and  in  what  way  was  it  fixed? 

3.  Wliat  proportion  does  the  Haikwan  tael  l)ear  to  the  ordinary 
local  tael,  and  to  the  Kweip'ing  tael  of  Shanghai?  What  constitutes 
Tsu-se-wen-yin  (the  standard  of  pa3'ment)  ? 

4.  Are  the  rates  for  Chinese  merchants  the  same  as  for  foreigners? 
If  not,  why  not? 

5.  Does  the  present  system  work  satisfactorily?  Are  there  any 
complaints?     Have  you  any  suggestions  to  make? 

You  will  please  give  to  this  inquiry  your  best  attention,  and  see  that 
the  information  you  collect  is  reliable  and  as  complete  as  possible. 
You  will  forward  copies  of  any  dispatches  or  agreements  relating  to 
the  currenc}^  question  that  may  be  found  in  your  archives  or  be  other- 
wise procurable. 

I  am,  sir,  3'our  obedient  servant, 

Robert  Hart, 

Inspector-  General. 
The  Commissioners  of  Customs. 


Custom-House, 

Tientsin.^  February  6,  1878. 

Sir:  I  have  the  honor  to  acknowledge  the  receipt  on  the  10th  ultimo 
of  yoitr  circular  No.  32  of  1877,  calling  for  a  report  on  "The  Haikwan 
banking  system  and  local  currency  ,"  and  to  tender,  in  conformity  with 
your  instructions,  the  information  obtained  on  tlie  su))ject. 

Ad.  1. — When  this  port  was  thrown  open  to  foreign  trade,  the  then 
Imperial  conmiissioner,  Chung  How,  appointed  a  Tientsin  merchant 
of  the  name  of  Pang  Tsze-kang,  customs  banker.  During  the  7th 
year  of  Tung  Chih,  Pang  Tsze-kang  failed  in  business  and  shortl}^ 
afterward  died.  It  is  generally  undei'stood  that  on  this  occasion  the 
Imperial  commissioner  lost  40,000  taels,  which  he  never  was  able  to 
recover. 

The  next  banker  employed  was  Sung  King,  formerly  comprador  in 
the  firm  of  E.  D.  Sassoon  &  Co.  During  the  12th  moon  of  the  13th 
year  of  Tung  Chili,  this  man's  appointment  was  cancelled  ])y  the 
then  superintendent,  Sun  Shih-ta,  on  the  ground  of  unjustifiable  exac- 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       211 

tions  from  dnty-pavcrs.  His  successor  was  a  Cantonese  of  the  name 
of  Chen  Pei-clui,  wlio  resij^ned  durino-  the  (Ith  moon  of  the  3rd  ye;ir  of 
Kuan*;'  Ilsii,  when  Li  Chao-t'ang-,  the  present  ineumlient  of  the  supcr- 
intcndeney,  transferred  the  Customs  Hank  to  C'hC'ii  Te-kuant;-,  likewise 
a  Cantonese  merchant,  and  formerly  comprador  to  the  linn  of  Ru.ssell 
&  Co.,  who,  under  the  style  of  Yil  Fenu-,  trades  in  opium.  Chen 
Te-kuang*  employs  in  connection  with  his  l)ankinj^  business,  one  lin- 
jjuist,  two  accountants,  two  cashiers,  one  assaN'er,  one  whipper-in  (/.  e. 
an  employee  whose  specialty  it  is  to  press  for  pajincnt  such  duty- 
pa3'ers  as  have  a  credit  with  the  bank),  and  seven  servants,  as  carters, 
cooks,  etc.  Jn  addition  to  the  salaries  and  wages  of  the  al)ove  staff, 
the  banker  has  also  to  pay  two  deputies,  supposed  to  control  his  pro- 
ceedings, but  who — if  the  superintendent  and  banker  are  on  good 
terms,  as  at  present  is  the  case — seem  to  have  nothing  to  do  but  to 
draw  pay  issued  to  each  at  the  rate  of  20  taels  a  month. 

The  banker's  proHts  are  derived  from  the  difference  in  the  rates  at 
which  he  is  allowed  to  collect  in  local  currency  the  ouglit-to-))e  Haikwan 
weight  of  sycee,  and  to  make  remittance  of  duties  collected  to  the  super- 
intendent. The  total  gross  profits  thus  derived  by  the  banker  here 
vary  from  5,000  to  6,000  taels  a  year,  while  his  expenses  for  the  same 
period  are  estimated  at  3,000  taels. 

Ad.  '2. — Duties  ma}^  be  paid  either  in  Hang-p'ing  Hua-pao  taels  or 
in  dollars.  When  pa3'ing  dut}",  foreign  merchants  are  charged  per 
hundred  Haikwan  taels,  105  Hang-p'ing  taels;  while  Chinese  are 
charged  106  taels  and  5  candareens,  or  1.05  taels  per  cent  more  than 
foreigners.  By  virtue  of  an  agreement  entered  into  by  the  former 
imperial  connnissioner  and  the  then  British  consul,  Mr.  Mongan,  the 
Mexican  dollar  is  taken  in  pa3'ment  at  the  uniform  rate  of  7  mace 
Hang-j)'ing  weight,  independent  of  the  market  quotations.  An 
attempt  was  made  by  the  banker,  Sung-king,  to  iipset  this  arrange- 
ment and  to  calculate  dollar  payments  according  to  the  changing  rates 
of  the  da}"  this  however  was  unsuccessful,  so  that  at  the  present 
moment  the  above-mentioned  agreement  holds  still  good. 

Ad.  3.- — One  Haikwan  tael  is  ecpuil  to  1  tael  5  candareens  Hang-p'ing 
currency,  and  1  Hang-p'ing  tael  is  equal  to  1  tael  and  a  fluctuating 
number  of  candareens  Kwei-p'ing  currency;  the  nearest  average  valu- 
ation would  be  to  put  down  100  Hang-p'ing  taels  as  equal  to  101  taels 
and  5  mace  Kwei-p'ing  currency.  By  the  term  tsu-se-wen-yin  (the 
standard)  is  understood  first-class  pure  sycee,  such  as  is  claimed  and 
accepted  })y  the  Government  treasuries.  This  pure  s^^cee  is  called  at 
Tientsin  T"ou-pai-pao. 

Ad.  Jf. — It  has  already  been  stated  that  Chinese  merchants  are 
treated  on  a  difl'erent  footing  from  foreigners,  and  that  they  pay  per 
100  Haikwan  taels  in  local  currency  106.05  taels,  while  foreigners  pay 
onlv  105  taels.  I  have  tried  to  And  out  the  motive  for  this  striking 
inequality,  but  failed  to  meet  with  any  other  reason  for  it  than  that 
the  superintendent,  in  order  to  have  an  inexpensive  system  of  ))ankiiig, 
must  allow  this  exaction,  having  no  other  inducement  to  offer  the 
banker.  In  this  connection  it  is  necessary  to  state,  too,  that  Russian 
merchants  were  until  very  latel}^  specially  privileged,  inasmuch  as 
as  their  duty  payments  were  made  at  the  rate  of  108  taels  local  cur- 
renc}'  per  100  Haikwan  taels.  Representations  made  by  certain  (Icr- 
man  merchants  chiiming  the  same  favoral)le  terms  led  to  the  lengthy 
correspondence  between  the  various  consuls  and  the  superintendent, 


212  GOLD    STATED ARD    TN    INTERNATIONAL    TRADE. 

of  which  I  just  received  a  copy,  which  I  now  forward  for  your  infor- 
mation. The  matter  has  as  3^et  not  been  settled;  in  the  meanwhile, 
Russian  merchants  have  been  placed  on  the  same  footinj^  and  pay — 
under  protest  and  pending-  the  ultimate  settlement  of  the  question — the 
rates  in  force  in  the  case  of  other  nationalities. 

Ad  5. — As  far  as  the  archives  of  this  office  are  concerned,  there  arc 
no  cases  on  record  that  ^ive  ground  for  serious  complaints  about  or 
against  the  present  system  and  working  of  the  Haikwan  Bank.  But 
that  should  not  be  considered  and  taken  for  a  proof  of  its  perfection. 
Those  who  have  undoubtedly  complaints  to  proffer  are  in  the  first 
instance  the  superintendents  of  customs,  who  themselves,  here  and  at 
other  treaty  ports,  may  at  any  moment  be  exposed  to  great  personal 
losses,  should — as  has  happened  more  than  once — a  Haikwan  bank 
break;  and  in  the  second  instance  the  Chinese  merchants,  who  are  not 
treated  on  the  same  equitable  footing  which  is  claimed  and  maintained 
by  foreigners.  As  to  suggesting  improvements,  I  have  not  been  long 
enough  at  Tientsin  to  give  at  present  more  complete  and  precise 
information  on  this  subject,  which  indeed  demands  quite  a  study  of 
peculiarities  and  usage;  and  1  can,  therefore,  in  this  place  only  wind 
up  with  the  general  suggestion  that  if,  as  will  sooner  or  later  happen, 
the  central  Government  is  going  to  introduce  a  coinage,  the  customs 
banking  business  at  all  the  ports  be  placed  under  one  administration, 
which  could  thus  form  the  nucleus  for  a  Government  bank,  the  want 
of  which  is  now  already  much  felt.  A  move  in  this  direction  would 
not  be  a  loss  to  the  majority  of  superintendents;  on  the  contrary,  it 
would  free  them  from  much  anxiety,  while  it  would  put  a  stop 
to  otherwise  irrepressible  illegalities,  abuses,  and  consequent  discus- 
sions in  all  quarters. 

I  duly  inclose  copy  of  the  correspondence  exchanged  between  the 
superintendent  and  commissioner,  relating  to  the  Haikwan  Bank  and 
its  working. 

I  have,  etc.,  Detring, 

Commissioner  of  Customs. 

To  Robert  Hart,  Esquire, 

Inspector  General  of  Custovis^  Peking. 


[Inclosure  No.  2.] 

Statement  <f  the  results  of  an  inquiry  into  the  local  currency. 

1.  We,  the  undersigned,  proceeded,  on  the  24th  of  April,  1878,  to 
the  Customs  Bank,  Tientsin,  in  order  to  ascertain,  by  a  minute  and 
careful  inquiry — 

{a)  The  relation  between  the  standard  weights  for  silver  paid  in 
liquidation  of  duties  to  the  imperial  customs,  Canton,  and  the  so-called 
Hang-ping — the  weight  used  for  the  same  purpose  at  Tientsin. 

{h)  The  relation  of  the  so-called  '  Hua-pao  compound  of  silver  cur- 
rent at  Tientsin,  to  pure  silver,  commonly  known  as  sycee,  or  in 
Chinese,  Hsi-ssii,  and  described  as  Wen-yin  in  the  Chinese  version  of 
the  treaties. 

2.  With  a  view  to  ascertain.  Ad  A.,  the  difference  in  weights,  we 
took  with  us  a  set  of  Canton  weights— one  for  100  Haikwan  taels  and 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       213 


cne  for  50  Haikwan  taels,  the  former  bearing  the  date  of  the 
of  the  6th  moon  of  the  6th  year  of  Tung  Chih,  and  both  l)el 


le  15th  day 
"ung  Chih,  and  both  l)elonging  to 
the  chest  of  the  aocountvS  office,  custom-house,  Tientsin. 

Having,  by  means  of  the  scales,  established  the  fact  that  the  set  of 
Canton  weights  in  our  possession  correspond  exactly  with  a  set  of 
Canton  weights  lately  procured  by  the  customs  banker,  we  proceeded 
to  compare  the  local  Hang-ping  weights  with  the  aforesaid  Canton 
customs  weights,  and  found  loO  Haikwan  taels  to  equal  101.38  Hang- 
ping  taels. 

8.  In  order  to  lind  out.  Ad  i?,  the  amount  of  pure  silver  (sycee)  con- 
tained in  the  alloyed  ('Hua-pao)  silver,  as  used  in  trade  at  Tientsin, 
the  undersigned  took  two  shoes  of  '  Hua-pao  silver,  weighing  together 
105  Hang-ping  taels,  [i.  e.,  the  amount  of  this  alloyed  ('Hua-pao)  silver 
which  has  hitherto  been  taken  ))y  the  customs  bank  as  the  tixed  equiva- 
lent of  100  Haikwan  taels  of  svcee  (pure  silver)]. 

The  105  Hang-ping  taels  of  'Hua-pao  silver  were  then  taken  to  the 
crucible,  melted,  and  retined  b}^  the  ordinar}^  Chinese  process  of  admix- 
ing saltpeter,  which  substance  unites  with  the  alloy  and  forms  a  slag 
on  the  surface.  After  removing  this,  the  pure  silver  remaining  was 
cast  into  two  shoes;  these,  when  put  in  the  scales,  were  found  to  weigh 
103.81  Hang-ping  taels,  or  99.17  Haikwan  taels. 

4.  The  conclusions  arrived  at,  on  the  basis  of  the  above  experiments, 
respecting  the  relative  weight  and  value  of  Haikwan  taels  in  pure 
silver,  and  Hang-ping  taels  in  alloyed  ('Hua-pao)  silver,  are — 

1.  That  loo  Haikwan  taels  equal  in  weight  101.38  Hang-ping  taels. 

2.  That  100  Haikwan  taeb  in  pure  silver  equal  in  value  105.55  Hang- 
ping  taels  in  'Hua-pao  silver. 

With  reference  to  the  latter  result,  the  customs  banker  declared  that 
the  alloy,  extracted  from  the  siher  by  the  process  witnessed  by  us, 
still  contained  a  certain  proportion  of  silver,  which  might  be  extracted 
by  re-melting;  and  that  accordingly  the  Tientsin  bankers  calculated, 
and  accepted  in  payment,  105.2.1.5  Hang-ping  taels  of  '  Hua-pao  silver 
as  equal  to  100  Haikwan  taels  of  pure  silver. 

5.  In  answer  to  inquiries  made  by  the  undersigned,  the  banker 
further  stated  that  shoes  of  pure  silver,  bearing  the  stamp  of  Tientsin 
lianks,  may  be  l)ought  in  the  mone}'  mai'ket,  and  that  he  is  willing  to 
take  them  from  foreigners  in  payment  of  duties,  according  to  the 
Canton  Haikwan  weights. 

Detring, 

Commisfiioner 
H.  B.  Morse, 
A ssistmit  Accoa n  Uvnt. 
CuSTOM-HoUSE, 

Tientsin,  May  13,  187S. 


No.  59.  I  CuSTOM-HoUSE, 

I.  G.     f  Tientsin,  May  25,  1878. 

Sir:  In  continuation  of  my  dispatch,  No.  52,  of  the  13th  instant, 
"inijuiry  into  the  local  currency,'"'  1  have  to  report  that  I  availed 
myself  of  the  presence  of  the  Hu-Peh  mining  engineer,  Mr.  Crooks- 
ton,  to  secure  an  analysis  of  the  '  Hua-pao  silver  current  at  Tientsin. 
1  now  inclose  copy  of  a  letter  from  him,  giving  tl;e  result  of  a  so- 
called  "wet''  analysis  made  in  the  laboratory  of  the  arsenal. 


214       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

Taking  the  amount  of  alloy  as  given  by  the  analysis  at  the  customs 
bankers  on  the  i^-tth  day  of  April,  viz,  1.14  per  cent,  it  would  require 
105.55  Hang-ping  '"Hua-pao  taels  to  equal  100  Haikwan  taels  of  pure 
silver.  On  the  basis  of  Mr.  Crookston's  analysis,  giving  2.16  per  cent 
of  alloj',  106.61*  Hang-ping  'Hua-pao  taels  would  equal  100  Haikwan 
taels  of  pure  silver. 

I  have,  etc.  Detring, 

CommAssioner  of  Customs. 
Robert  Hart,  Esq., 

Inspector-  General  of  Customs,  Peking. 


[Inclosure.] 

Mr.  Croolcston^s  analysis  of"  Ilaa-pao  silver  current  at  Tientsin. 

Tientsin,  May  24,  1878. 

G.  Detring,  Esquire, 

Commissioner  of  Customs.,  Tientsin. 
Dear  Sir:  The  sample  of  silver,  marked  '"Hua-pao  silvei,  current 
at  Tientsin,"  which  you  sent  me  on  the  22d  instant,  I  have  carefully 
analyzed,  in  accordance  with  your  request,  and  now  beg  to  submit  you 
the  result,  which  is  as  follows,  viz: 

Per  cent. 

Pure  metallic  silver 97.  84 

Impurities 2. 16 

100. 00 
Yours,  faithfully, 

A.  W.  Crookston. 


No.  19.   I  CuSTOM-HoUSE, 

I.  G.    i"  Ningpo,  February  m,  1878. 

Sir:  In  accordance  with  the  instructions  contained  in  your  Circular 
No.  82,  of  date  8th  December  last,  I  have  the  honor  to  report  as  fol- 
lows respecting  the  ''Haikwan  banking  system  and  local  currency:" 

1.  The  customs  banker  here  is  the  well-known  Hu  Kuang-yung,  or 
Hu  Taotai.  He  is  a  Taotai  by  purchase,  and  has  a  Fantai's  brevet 
rank,  but  he  is  engaged  in  trade,  being  interested  in  several  different 
establishments— banks,  pawn  shops,  medicine  shops,  etc.  The  staff 
employed  is  as  follows: 

One  resident  manager;  salary  and  perquisites  about  $2,400  per 
annum." 

One  assistant  manager,  who  is  chief  accountant;  salary,  etc.,  $1,200 
per  annum. 

Two  assistant  accountants;  salary  of  each,  $450  per  annum. 

One  trcasui'ei',  receiving  al)Out  $300  per  annum. 

One  bookke(^per,  receiving  about  $800  per  annum. 

Six  writers  or  clerks,  receiving  each  about $200  per  annum. 

One  learnei';  salary,  $60  per  annum. 


"  Silver  dollars  equal  to  the  Mexican  dollar  in  value. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       215 

Three  coolies  and  one  cook,  each  leceiviiiu-  about  $♦>«)  per  annum. 

The  total  thu.s  received  as  salaries  by  the  stati'  at  the  bank  is  $(;,(iOO. 
Food,  fuel,  and  oil  for  a  year  amount  to  about  $1,500.  The  buildino- 
is  the  property  of  Hu  Taotai.  The  total  annual  expenditure  would 
thus  appear  to  be  $8,100.  But  to  this  must  be  added  loans  to  some  of 
the  staff  in  the  Taotai's  Yamen,  which  are  never  expected  to  be  repaid, 
and  have  been  reported  to  me  as  amounting  to  7,000  taels. 

'I'hese  expenditures  are  authorized  by  Hu  Taotai.  The  fixed  sal- 
aries are  small,  but  at  the  end  of  the  3"ear  the  accounts  are  sul)mitted 
to  Hu  for  inspection,  and  presents  (included  in  the  foregoino'  estimates) 
are  awarded  to  all  the  employees,  high  and  low,  based  ])rol)ably  on  a 
percentage  of  the  bank's  profits. 

When  the  foreign  customs  was  first  established  here,  a  Ningpo  man 
was  appointed  banker;  but  soon  after  Hu  Taotai  succeeded  him.  The 
resident  managership  has  been  held  by  a  number  of  persons,  including 
two  of  Hu's  brothers.  The  present  manager,  Yang-,  is  a  native  of 
Tz'ch'i-hien,  near  this  place,  and  a  pupil  and  protege  of  the  great 
baid^er.  He  is  engaged  in  trade,  in  several  establishments,  local  and 
otherwise,  in  some  of  which  he  is  a  partner  with  Hu.  He  is  not  alwa3"s 
at  Ningpo,  and  Ma  frequently  ]ierforms  his  duties  at  the  l)ank. 

The  Taotai  has  informed  me  that  the  present  Customs  Bank  was  hrst 
authorized  as  such  in  the 5th  moon  of  the  IstjearT^ungChih — that  si, 
June,  1862;  and  that  in  the  lltli  moon,  3d  year  T'ung  Chih — that  is, 
December,  1864 — the  selection,  name,  etc..  of  this  bank  was  duly 
reported  through  the  high  provincial  authorities  to  the  ))oard  of  revenue 
and  the  Tsungli  Yamen. 

Respecting  the  way  in  which  the  bank's  expenditure  is  provided  for, 
it  is  impossible  without  several  months'  time  to  obtain  exact  knowledge. 
It  is  well  known  that  the  profits  of  the  bank  are  considerable;  indeed, 
it  has  been  stated  to  me  on  good  authority  that  they  amount  altogether 
to  50,000  taels  per  annum.  First  of  all,  there  is  interest.  At  Ningpo, 
the  mone}^  collected  as  duties  is  not  paid  into  the  Taotai's  treasury  at 
regular  intervals  of  four  or  five  da3^s,  as  is  required  at  some  ports,  but 
the  banker  lends  it  out  at  interest  until  it  is  required  for  remitting. 
When  Ku  Ta-jen  was  Taotai,  he  once  directed  that  the  duties  should 
be  paid  into  his  treasury  every  five  daj-s,  Imt  he  was  met  with  such  a 
strenuous  resistance  that  he  soon  revoked  these  orders.  It  is  a  prin- 
ciple familiar  enough  to  the  Chinese  that  ofhcial  moneys  ought  not  to 
be  put  out  at  interest  in  this  way,  but  it  is  not  adhered  to  here.  Huis 
rich,  and  as  he  sometimes  accommodates  the  Government  with  advances, 
and  shares  the  profits  of  his  business  with  those  capable  of  exercising 
influence  on  his  behalf,  he  is  allowed  to  have  his  own  way  in  handling 
the  revenues  he  receives.  For  confirmation  of  this  see  my  dispatch 
No.  19,  of  January  24,  1878. 

There  are  also  other  profits  to  the  bank,  such  as:  First,  Tap'ingyii; 
second,  Sz'p'ingyii;  third,  'Huifei,  and,  fourth,  'Huo'hao. 

The  Tap'ingyii  is  derived  from  the  custom  of  collecting  Haikwan 
taels  and  remitting  K'up'ing  taels.  In  other  words,  the  merchant  pays 
105.83  Ningpo  taels  as  100  Haikwan  taels,  and  the  bank  only  remits 
104.7O  Ningpo  taels,  this  ))eing  100  K'up'ing  taels.  Here  is  a  profit  of 
1.13  Ningpo  taels  on  every  100  Haikwan  taels  remitted,  which  would 
amount  to  8,136  Ningpo  taels  if  one  entire  year's  collection  had  to  be 
remitted.  But  for  the  fact  here  stated  that  K'up'ing  taels  only,  and 
not  Haikwan  taels,  are  remitted  I  do  not  vouch.  • 


216       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

The  Sz'p'ingyii  means  the  amount  "  squeezed  "  by  the  bank  in  the 
weight,  exchange,  or  qualit}^  of  sycee  received,  more  than  what  a  just 
weight,  a  correct  exchange,  and  an  honest  shroft'age  would  admit  of. 
The  105.83  Ningpo  taels  demanded  as  the  equivalent  of  100  Haikwan 
taels  is  too  much,  as  I  shall  show  further  on.  Though  the  bank  col- 
lects 105.83  Ningpo  taels  for  1()0  Haikwan  taels,  it  paid  me  the  other 
da3^  at  the  rate  of  lOo.-lo  Ningpo  taels,  as  was  verified  by  the  Kung-ku. 

The  'Huifei  are  a  charge  of  IS  taels  for  every  1,00(»  remitted,  as 
expenses  of  remitting.  But  as  remittances  are  made  by  bills,  these 
expenses  are  not  incurred;  still  they  are  charged  for.  1  am  told  that 
the  bank  gets  one-fourth  of  this,  the  Taotai  one-third,  and  the  head 
8hupan  one-twelfth;  the  rest  goes  to  various  Weiyiian,  to  the  board 
of  revenue,  etc. 

The  'Huo'hao,  meltage,  is  a  charge  of  1.20  taels  for  ever}^  100  taels 
remitted,  although  remittances  are  not  made  in  silver.  This  is  shared 
by  the  bank  and  by  others  at  this  port. 

Tlfere  are  also  small  sums  (from  $5  to  $30)  annually  presented  to  the 
bank  by  the  merchants  and  called  "stationery  expenses; "  ostensibly 
as  compensation  for  the  paper,  ink,  pencils,  etc.,  used  in  keeping  the 
bank's  books,  etc.,  and  in  issuing  its  documents.  These  are  in  practice 
the  perquisites  of  the  bank  employees. 

Such  comments  as  I  may  have  to  make  concerning  the  sources  of 
income  to  the  banker  and  his  emploj^ees  and  others,  belong  under 
the  fifth  section  of  this  report. 

2.  Duties  at  this  port  are  paid  nominally  in  Ningpo  taels — that  is,  in 
sj'^cee,  not  in  dollars.  [The  Ningpo  tael  is  called  a  Chiangp'ing  tael, 
and  will  be  so  termed  by  me  throughout  this  report.] 

Every  haikwan  tael  which  has  to  be  paid  is  first  converted  into 
Chiangp'ing  taels  at  the  fixed  rate  of  1  Haikwan  tael  equals  1.0583 
Chiangp'ing  taels,  and  payment  of  the  total  number  of  Chiangp'ing 
taels  due  is  then  made,  sometimes  (a)  in  sycee,  sometimes  {b)  in  dollars 
at  the  day's  rate  of  exchange,  sometimes  (c)  in  bills  on  Shanghai 
expressed  in  Kweiyiian  taels  (that  is,  Shanghai  taels)  and  calculated 
from  Chiangp.ing  taels  at  the  rate  of  1  Kueiyiian  tael  equals  0.9183 
Chiangp'ing  taels,  and  most  frequently  (d)  by  the  Kwochang  method. 
As  the  circular  under  reply  does  not  ask  how  the  rate  1.0583  was  deter- 
mined, I  leave  that  point  to  be  explained  further  on. 

The  foregoing  paragraph  answers  categorically,  as  briefly  as  possi- 
ble, the  questions  put  under  2  in  the  circular.  But  before  proceeding 
to  the  points  under  3,  I  think  it  necessary  to  explain  at  some  length 
the  process  of  paying  duties  at  this  port. 

1  have  said  that  duties  are  nominally  paid  in  Chiangp'ing  taels;  but 
the  actual  system  of  paying  duties  here  is  a  peculiar  one.  The  receipt 
for  the  duty  is  almost  invaria))ly  given  to  the  merchant  at  the  Customs 
Bank  before  the  duty  money  has  been  received;  and  the  duty  is  col- 
l(M-ted  by  an  ally  or  branch  of  the  Customs  Bank  either  at  Ningpo,  a 
few  hours  after  the  issue  of  the  bank  receipt,  as  is  the  case  with  most 
merchants,  or  else  at  Shanghai  a  day  or  two  after  the  issue  of  the  bank 
receipt,  as  is  the  practire  with  a  few  large  and  favored  hongs.  But, 
sti-angcr  than  this,  actual  dollars  and  actual  sycee  are  scarcely  ever 
juiid  iis  duties,  whether  into  the  Customs  Bank  here  or  into  its  Ningpo 
city  or  Shanghai  coadjutor;  indeed,  of  the  720,000  taels  annually  col- 
lected as  our  revenue,  the  ('ustoms  Bank  proper  receives  in  coin  or 
silver  about  3,000  taels;  the  Ningpo  cit^^  branch  of  the  Customs  Bank 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       217 

receives  about  lo.ooO  taels  in  coin  or  silver,  about  215,000  taels  in 
drafts  on  Shanohai,  andal)()ut  ;^»1>2,000  taels  by  the  Kwochang  method; 
and- the  Fowk'ano-  (Customs)  Bank  in  Shanghai  receives  about  100,000 
taels  in  sycee,  or  dollars,  or  by  Kwochang. 

Before  proceedino-  fm-ther.  I  must  explain  the  banking  system  of 
Xinypo  known  as  '*  Kwochang,"  by  which  the  manual  transfer  of  dol- 
lars or  sycee  is  reduced  to  a  mininuun,  tlu'rcl>v  sa\ino-  ex])ense  and  risk 
of  loss  in  conveying  money  to  and  fro,  and  waste  from  wear  in  han- 
dling, and  which  indeed  prevents  the  necessity  of  keeping  a  large  amount 
of  silver  in  this  place.  Jf  Cluing  owes  monev  to  Li,  he  tells  his  baid<er 
to  pay  Li's  banker  the  sum  rcipiired;  the  two  bankers  meet  l)y  deputy 
or  in  person,  each  makes  a  minute  of  the  transaction  in  his  book  and 
seals  are  impressed  to  attest  it,  Mone\'  is  not  drawn  out  and  conveyed 
from  one  bank  to  another,  and  not  even  do  the  parties  use  the  medium 
of  a  l)ank  check;  pi'ivatc^  checks,  too,  I  need  not  say,  are  not  used,  as 
they  are  illegal.  The  Kwochang  system  appears  indeed  to  be  a  near 
approach  to  a  system  of  barter  in  which  the  banks  are  merely  recorders 
of  the  bartering  transactions,  through  the  medium  of  imaginary  money, 
which  serves  simply  as  a  standard  for  estimating  the  relative  values  of 
the  articles  exchanged.  The  Kwochang  s\'stem  will  soon  be  perceived 
to  be  at  the  root  of  the  extraordinary  manner  in  which  duties  are  paid 
at  this  port.  (See  Mr.  Taintor's  Report  on  the  Trade  of  Newchw^ang 
for  lS7l-'2,  page  4.  The  Kwochang  s^'stem,  I  am  told,  obtains  also  in 
Shanghai.) 

1  now  propose  to  describe,  tirst,  how  duties  are  paid  in  Ningpo,  and, 
secondly,  how  payment  of  Ningpo  duties  is  made  at  Shanghai. 

The  following  is  the  process,  step  by  step,  as  practiced  almost  uni- 
versally by  the  merchants  of  Ningpo,  both  foreign  and  native.  A.  B., 
having  cargo  to  land  or  ship,  receives  from  the  custom-house  a  duty 
memorandum  for  so  many  Haikwan  taels.  He  takes  this  to  the  Cus- 
toms Bank  and  hands  in  with  it  a  pass  book,  which  he  always  uses  in 
paving  dut3^  The  banker  simply  notes  in  the  pass  book  the  sum  due 
in  Haikwan  taels;  a  like  entry  is  also  made  in  the  banker's  record 
Ijook,  and  the  pass  book  is  then  returned  to  the  merchant,  and  with  it 
a  bank  receipt  for  so  many  Haikwan  taels,  as  if  they  had  been  i)aid, 
although  in  fact  no  money  has  passed.  The  bank  receipt  is  presented 
to  the  customs -and  the  goods  are  released.  Now,  how  does  the  bank 
collect  the  Haikwan  taels  due  from  A.  B.  ? 

Here  a  brief  digression  is  necessary.  The  Customs  Bank,  situated 
very  near  the  custom-house,  is  called  T'ung  Yii,  and  there  exists  in 
the  business  quarter,  called  Chiang  Hsia,  outside  the  east  gate,  a  sec- 
ond bank,  closely  connected  wdth  the  one  above  named,  and  called 
T'ung-ch'iian.  These  two  banks  are  both  Hu  Taotai's.  The  former 
exists  solel}^  for  revenue  purposes;  it  does  no  general  business,  and  is 
regarded  purel}-  as  an  official  bank.  It  keeps  the  records,  and  is  the 
only  bank  recognized  In'  the  Taotai.  Yet  it  does  very  little  of  the 
actual  duty  collecting.  When,  as  only  occasionally  happens,  coin  or 
S3'cee  is  to  be  paid  as  duty  on  the  spot,  T'ung  Yii  receives  it;  but,  as 
intimated  above,  the  total  amount  collected  in  this  form  in  a  year  at 
Ningpo  is  only  about  3,000  taels.  T'ung-ch'iian,  on  the  other  hand, 
is  a  bank  for  general  business  purposes.  It  is  situated  near  all  the  other 
banks,  receives  deposits,  makes  loans,  etc.  It  is  also  the  collecting 
agent  for  T'ung  Yii,  representing  T'ung  Yii  vis-a-vis  the  other  banks, 
getting  silver  for  T'ung  Yii  when  it  is  wanted,  arranging  T'ung  YiVs 


218       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

remittances  to  or  from  Shanghai,  and  probably  managing  the  loaning 
of  sums  received  as  duties  until  such  time  as  they  have  to  be  remitted. 
When,  as  is  almost  universall}"  the  case,  the  merchant  has  simply  prom- 
ised to  pay  duty  b}'  an  entry  in  his  pass  book,  this  entr}^  is  made  by  T'ung 
Yii,  and  intimation  of  it  is  sent  to  the  T'ung-ch'iian  Bank.  It  then 
becomes  the  function  of  T'ung-ch'iian  to  collect  the  amount  from  the 
native  bank,  whichever  one  it  may  be,  in  which  the  accounts  of  the 
merchant  concerned  are  kept. 

At  this  point  a  further  explanation  may  conveniently  be  made. 
Business  in  Ningpo  is  done  in  dollars.  83"cee  is  so  scarce  here  that 
when  required  in  any  considerable  quantity  it  must  be  specially 
brought  from  Shanghai.  But  there  exists  a  nominal  Ningpo  tael  (as 
above  stated)  called  Chiangp'ing,  and  it  is  always  regarded  as  bearing 
a  fixed  relation  to  the  Haikwan  tael  (1  Haikwan  tael  equals  1.0583 
Chiangp'ing  taels).  But  the  relation  of  the  dollar  to  the  Chiangp'ing 
tael  and  that  of  the  Shanghai  tael  to  the  Chiangp'ing  tael  vary  con- 
stantly, and  on  this  question  of  exchange  disputes  are  liable  to  arise 
with  the  T'ung-ch'iian  Bank  in  paying  duties. 

Now,  to  resume  with  A.  B.,  to  show  how  he  pays  the  debt  incurred 
for  duty.  Returning  to  his  shop  from  the  custom-house  he  sends 
word  to  the  T'ung-ch'iian  Bank  that  he  has  to  pa}^  so  many  Haikwan 
taels  as  duty,  and  inquiries  how  many  dollars  are  claimed  from  him  as 
the  equivalent.  He  knows  that  the  number  of  Chiangp'ing  taels  to  be 
paid  will  be  1.0583  times  the  num])er  of  haikwan  taels  due;  but  the 
important  c[uestion  is,  how  many  dollars  will  T'ung-ch'iian  claim  as 
the  equivalent  of  the  Chiangp'ing  taels  ^  Should  the  sum  of  dollars 
claimed  be  unfairly  great,  the  merchant  finds  some  bank  which  is  will- 
ing to  pay  to  T'ung-ch'iian  in  his  behalf  the  amount  of  Chiangp'ing 
taels  due  in  consideration  of  a  less  sum  in  dollars  than  T'ung-ch'iian  had 
demanded,  and  T'ung-ch'iian  must  then  accept  the  sum  in  Chiangp'ing 
taels. 

Ordinarily,  however,  T'ung-ch'iian's  reply  would  be  satisfactory  to 
the  merchant,  and  on  receiving  it  he  directs  the  bank  in  which  his 
accounts  are  kept — say  the  Tsz-yiian  Bank,  for  example — to  pay 
T'ung-ch'iian  the  number  of  dollars  specified.  The  matter  then 
becomes  a  simple  one  for  the  two  banks  to  settle  between  them. 
Here,  of  course,  the  Kwo-chang  system  continues  in  play,  unless,  as 
rarely  happens,  T'ung-ch'iian  chooses  to  demand  real  dollars.  The 
general  practice  is  for  T'ung-ch'iian  simply  to  compare  accounts  on 
the  same  day  with  Tsz-3'iian,  one  claiming  the  existence  of  the  indebt- 
edness and  the  other  admitting  it,  and  that  is  all.  It  is  the  exception 
for  the  money  to  be  paid  at  the  time,  but  if  the  amount  is  consider- 
able, interest  is  charged  on  it  at  so  nuich  per  da}^,  the  rate  being  tixed 
at  the  outset. 

The  various  })anks,  therefore,  pay  duties  for  their  constituents  to 
T'ung-ch'iian,  this  bank  being  ke])t  advised  by  T'ung-yii  what  sums 
are  due  and  fioni  what  persons.  The  custom  is  for  each  merchant  to 
have  an  understanding  with  one  or  more  of  the  l)anks  tiiat  his  duties 
are  to  be  paid  up  to  a  certain  amount,  and  to  this  extent  tlie  banks 
hold  guaranties  given  by  the  merchant. 

The  medicines  shops  are  allowed  to  keep  a  running  duty  account 
with  the  (yiistoms  Bank  until  the  obligation  amounts  to  100  Haikwan 
taels,  and  they  then  })ay  into  T'ung-ch'iian  througli  their  own  banks 
b}'  "Kwo-chang,'"'  the  e(|iii\alent  of  an  e\t'n  100  Haikwan  taels. 


GOLD    STANPARD    TT^    TNTKRNATTONAL    TRABE.  219 

Tlio  foroiioino-  |):ira.ur;ii)lis  dctuil  the  way  in  wlii(;li  ii!K)ut  392,000 
tads  of  our  diitit's  arc  paid.  It  iiiay  l)c  a.sked,  "When  (h)e.s  the  real 
moiie}'  pass  over  from  the  various  hanks  into  T'unj^--ch*'uan"'s  hands  to 
be  remitted  r'  The  answer  is  that  T'ung-ch'iian  sometimes  requires 
sycee,  in  which  case  the  banks  procure  it  from  Shanghai,  but  ordi- 
narily they  pa}"  over  by  instructing-  their  Shan^^hai  I'cpresentatives  to 
pav  to  tlie  Fow-kSin«;-  liaidv  at  thtit  port.  For  the  period  after  the 
uioney  is  due  until  it  is  called  in  by  T'ung-ch'uan  (whether  in  s^'cee, 
dollars,  or  orders  on  Shanghai),  interest  is  paid  by  the  det)t()r  banks. 
This  interest  is  tiie  chief  source  of  the  Customs  Bank's  hirge  income. 

The  duties  paid  by  the  two  Sassoon  firms  on  o])ium,  amounting  to 
about  215,000  llaikwan  taels  per  annum,  are  paid  here  in  Kweiyiian 
tael  drafts  on  Shanghai.  The  amount  of  Shanghai  taels  due  has  first 
to  be  settled  here.  This  is  done  by  reducing  the  Haikwaii  taels  to 
Chiangp'ing  taels  in  the  usiial  way  (multiplying  by  1.0583),  and  then 
dividing  the  product  by  0.91:83,  which  is  a  fixed  rate  arranged  ))y  the 
firms  in  question  with  the  Customs  Bank,  and  the  result  is  the 
number  of  Shanghai  taels  to  be  paid.  (This  rate,  0.1U83  Chiang- 
ping  taels  equals  1  Shanghai  tael,  is  a  permanent  arrangement 
with  the  old  and  new  Sassoons;  other  merchants,  the  tea  hongs, 
for  example,  convert  at  the  rate  of  the  day  as  will  soon  be 
shown).  Sassoons'  Ningpo  banker  then  pays  to  T'ung-ch'iian  an 
order  on  Shanghai  for  the  sum  required.  My  comments  on  this  way 
of  paying  duties  belong  to  a  paragraph  below  (see  No.  1).  I  come 
now  to  the  payment  of  Ningpo  duties  at  Shanghai.  As  is  well  known 
this  port  is  only  a  point  of  transit  for  teas  bound  from  Pingsuey  or 
Fychow  to  Shanghai.  It  is  at  Shanghai,  not  here,  that  the  tea  men  are 
paid  for  their  produce,  and  yet  the  export  duty  is  payable  at  Ningpo. 
The  total  amount  which  has  to  be  paid  on  tea  is  from  300,00t>  taels  at 
370,000  annually,  say  about  45  per  cent  of  our  entire  revenue  of 
720,000  taels.  This  payment  falls  chiefly  on  two  or  three  houses  only, 
and  by  the  special  consent  of  the  banker  these  firms  pay  their  duties, 
say  100,000  taels,  into  the  Fowk'ang-  Bank  at  Shanghai,  at  which  place, 
rather  than  here,  they  have  availa))le  funds.  The  process  is  as  follows: 
Kiang-  Yii  Chang-,  for  example,  presents  to  the  bank,  say  on  the  20th 
of  the  month,  a  duty  memorandum  for  a  shipment  of  OOO  piculs  of 
tea.  The  firm's  pass  book  is  handed  in,  entry  is  made  in  it  of  an  indebt- 
edness of  1,500  llaikwan  taels  as  dut}'  on  the  part  of  the  tirm  to  the 
bank,  and  a  duty  receipt  is  issued,  which  enables  the  merchant  to  ship 
the  tea  for  Shanghai  on  the  same  da}'.  The  tirm  writes  by  same  oppor- 
tunity to  its  Shanghai  repi-esentative  that  he  must  pay  1,500  llaikwan 
taels  to  the  Fowk'ang  i>ank  at  that  place,  and  the  Customs  Bank  simi- 
larly advises  Fowk'ang  to  receive  1,500  Haikwaii  taels  from  Kiang  Vii 
Chang.  On  the  2 1st  or  22d,  or  about  that  time.  Kiang  Yii  Chang- 
accordingly  ])ays  FowkSmg  at  Shanghai  a  round  sum  of  so  man}^ 
Kweiyiian  taels,  cMiough  or  nearly  enough  to  cover  the  indebtedness; 
the  bank  at  Shanghai  advises  the  Customs  Bank  at  Ningpo  that  so  many 
Shanghai  taels  have  been  paid  in,  and  on  getting  this  intimation  the 
Customs  Bank  here  makes  entry  in  Kiang-  Vii  Chang's  pass  book 
that  so  man}'  Chiang-i)'ing  taels  have  been  paid  in  to  the  firm's  credit, 
having  uscert'ained  the  amount  to  be  thus  entered  by  converting 
the  Shanghai  taels,  as  advised,  into  Chiang))'ing  taels  at  the  rate  which 
prevailed  on  the  20th,  the  day  when  the  tea  was  shipped  at  Ningpo. 
Thus,  throughout  the  season,  th(>  ])rincipal  tea  firms  are  allowed  to  pay 


220  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

duty  at  Shanghai  within  a  few  days  after  it  has  become  due,  and  a 
running  account  is  maintained  with  a  small  balance,  sometimes  against 
the  merchant  and  sometimes  against  the  bank.  From  time  to  time  the 
account  is  cleared  to  a  cash.  The  Hip  Mow  Kuang  tea  firm  have 
allowed  me  to  make  a  copy  of  their  pass  book,  and  I  send  it  herewith 
as  ii  sample  of  them  all.  Duties  due  are,  it  will  be  seen,  entered  in 
Haikwan  taels,  called  sz'p'ing,  and  payments  at  Shanghai  are  entered 
in  Chiangp'ing  taels,  they  having  actually  been  made  (as  above  stated) 
in  Shanghai  taels  at  Shanghai  and  converted  at  the  rate  current  on  the 
day  the  duty  receipt  was  issued.  When  it  becomes  necessary  to  bal- 
ance the  account  the  Haikwan  taels  entered  as  duties  are  converted  into 
Chiangp'ing  taels  by  multiplying  by  1.0583.  The  pass  book  sent  with 
this  concludes  with  the  striking  of  a  balance  on  the  24th  of  the  11th 
moon  when  it  was  found  that  21,1:37.35  Haikwan  taels,  say  22,687.147 
Chiangp'ing  taels,  had  been  entered  as  due  and  20,639.10  Chiangp'ing 
taels  had  been  entered  to  the  merchant's  credit.  The  account  is  finall}^ 
cleared  by  the  payment  of  two  sums,  viz,  Chiangp'ing  taels,  1,137.60 
and  910.147. 

1  stated  above  that  about  10,000  taels  are  paid  in  coin  or  silver  to 
T'ung-ch'tian  on  the  spot.  This  hardly  needs  to  be  explained,  but  I  will 
simply  say  that  this  sum  represents  payments  made  in  currency  instead 
of  by  Kwo-chang  by  the  merchants'  bankers  at  the  very  time  when 
the  duties  are  due. 

Actual  sycee  or  dollars  have  to  be  paid  as  duty  by  everybody  from 
the  24th  day  of  the  12th  moon  to  the  25th  of  the  1st  moon. 

3.  The  Haikwan  tael  bears  to  the  ordinary  local  tael  (Chiangp'ing- 
yin)  the  fixed  proportion  1  Haikwan  tael  equals  1.0583  Chiangp'ing 
taels. 

The  Haikwan  tael  of  Ningpo,  that  is  to  say  1.0583  Chiangp'ing  taels 
bears  to  the  Kweiyiian-p'ing  tael  of  Shanghai  an  ever- varying  propor- 
tion. The  practice  here  is  to  convert  Haikwan  taels  first  into  local 
taels  at  the  fixed  rate  above  given  and  then  to  convert  the  amount  of 
Chiangp'ing-  taels  thus  ascertained  into  Kweiyiian  taels  according  to 
the  rate  of  the  da}'  which  is  determined  on  the  arrival  of  the  morning 
steamer  from  Shanghai.  Two  firms  have  given  me  tables  showing  the 
rates  for  1877. 

The  lowest  rate  is  1  Kweiyiian  tael  equals  0.943  Chiangp'ing  tael; 
this  would  give  1  Haikwan  tael  of  Ningpo  equals  1.1222693  Kweiyiian 
taels. 

The  highest  rate  is  1  Kwei3^iian  tael  equals  0.949  Chiangp'ing  tael; 
this  would  give  1  Haikwan  tael  of  Ningpo  equals  1.1151738  Kweiyiian 
taels. 

The  average  rate  calculated  from  the  more  complete  of  the  two 
tables  supplied  me  is  0.9473;  this  gives  1  Haikwan  tael  of  Ningpo  equals 
1.117175  Kweiyiian  taels. 

The  average  rate  from  the  other  of  the  two  ta])les  supplied  me  is 
0.9464;  and  this  gives  1  Haikwan  tael  equals  1.118237  Kweiyiian  taels. 

It  should  be  observed  that  I  am  now  reporting  what  i-ates  exist  here 
without  reference  to  whether  they  should  or  should  not  be  what  they 
are.  Under  section  5,  I  shall  show  why  1  think  the  rate  1  Haikwan 
tael  equals  1.0583  Chiangp'ing  taels  is  too  high,  and  that  it  should  be 
1.0553. 

The  Haikwan  tael  as  paid  by  the  Sassoons  bears  to  the  Kweiyiian- 
p'ing  of  Shanghai,  l)v  the  special  arrangement  described  above,  not  a 


GOLD    STANDARD    IN   INTERNATIONAL    TRADE.  221 

varying'  but  a  Hxed  proportion,  nanioly,  1  llaikwaii  ta(>l  equals  1. 11599, 
or,Hay,  1. 116  KweipMiitif  tads.  This  is  determined  by  takiuj^'  1  Ilaikwan 
tael  to  e(|ual  LonsSChianjjp'itio-  taels,  and  then  conv(M'tin<i;- 1.0583  Chi- 
ano-p*inu  laels  into  Kwcivuaii-p'ing"  by  diyidino-  by  the  tixed  rate 
0.94S3.  " 

The  (juestion,  ^^'hat  constitutes  tsu-se->ven-yin  ?  I  can  not  answer, 
nor  can  any  of  the  experts  whom  I  haye  interroj^atcd  on  the  subject. 

The  customs  banker  says  that  tsu  means  that  the  silver  should  be  pure, 
i.  e. ,  free  from  other  metals  and  foreign  sul)stances;  the  se  (color)  of 
such  silver  should  be  perfectly  white,  and  the  word  wen  (hayinj^  marks 
or  lines)  refers  to  that  corrugated  appearance  which  the  outside  of  a 
shoe  of  pure  sycee  may  be  seen  to  have,  as  contrasted  with  the  smoother 
surface  of  an  inn)ure  shoe.  It  is  well  known  that  it  takes  an  appren- 
ticeship of  years  before  a  C/hinaman  pretends  to  be  a  competent  judge  of 
the  (juality  of  siher,  and  no  one  believes  that  his  judgment  is  ever  any- 
thing more  than  approximate.  It  is  for  this  reason  that  a  kung-ku  is 
estai)lished  at  all  consideraV)le  places  of  trade,  simply  because  mer- 
chants nnist  have  some  tribunal  to  pronounce  authoritavely  and  with- 
out delay  on  the  value  of  the  silver  used,  and  it  is  the  conmion 
understanding  that  the  kung-ku\s  appraisals  shall  be  accepted,  not 
necessarily  as  correct,  but  as  authoritative.  It  is  the  crude  expedient 
of  an  imperfect  civilization,  a  sort  of  court  of  arl)itration  where  the 
arl)itrators  are  known  to  be  incompetent,  but  are  the  best  to  be  had. 
Who  can  be  supposed  to  ))e  able  to  determine  in  the  case  of  a  shoe  of 
sycee  weighing  50  taels  just  how  many  of  the  5,0oo  candareens  which 
it  weighs  are  not  silver,  but  are  some  other  substance:!  And  to  deter- 
mine this,  not  by  a  nice  process  of  chemical  analysis,  but  1)}'  such 
]>rimitiye  methods  as  the  quality  of  its  ring  when  tapped,  its  color,  espe- 
cially as  disclosed  in  the  little  holes  which  form  underneath  a  shoe  when 
solidifying,  or  as  shown  on  a  cut  surface,  whether  it  be  white  or 
yellowish,  and  the  smooth  or  corrugated  look  of  the  uncut  exterior  of 
the  shoe.  In  fact,  no  two  experts  are  sure  to  agree  as  to  the  degree  of 
puritj^  or  the  exact  percentage  of  its  weight  to  be  deducted  as  re- 
presenting the  admixture  of  foreign  substance.  It  is  well  known  that 
the  tsu-se-wen-yin  of  Kiangsi,  where  the  highest  standard  of  purity 
prevails,  differs  as  much  as  is  represented  bv  3  or  4  mace  in  every  loO 
taels'  weight,  from  the  silver  of  Fukien,  where  the  standard  of  purity  is 
the  lowest,  and  the  other  provinces  range  between  these.  But  the 
board  of  revenue  accepts  the  tsu-se  wen-3dn  of  Fukien  no  less  than 
that  of  Kiangsi,  although  the  qualities  differ. 

4.  No  line  of  discrimination  is  drawn  betw^een  the  Chinese  and  for- 
eigners in  the  rates. 

But  there  are  different  rates:  Sassoons'  pay  in  one  way,  the  tea  hongs 
in  another,  and  the  rest  of  the  merchants,  whether  foreign  oi"  Chinese, 
in  another. 

Sassoons'  rates  are  all  tixed.  Suppose,  for  example,  that  they  have 
to  pay  25  haikwan  taels;  this  sum  is  multiplied  by  1 ,05S3,  giving  2H.4575 
as  the  amount  due  in  Ch'iangp'ing  taels.  Then  each  0. 9483  Ch'iangp'ing 
tael  is  by  ffxed  arrangement  taken  as  1  Kwcip'ing  tael,  and  consequentl}' 
the  equivalent  of  26.4575  Ch'iangp'ing  taels  is  27.89 — the  amount  of 
Shanghai  taels  to  be  paid. 

The  large  tea  hongs  which  pay  in  Shanghai  reckon  in  the  following 
manner:  Suppose  the  sum  of  25  Haikwan  taels  to  be  due  as  duty;  it 
is  set  down  in  their  pass-books  as  25  Haikwan  taels,  and  in  all  subse- 


222       GOLD  STANDAKD  IN  INTERNATIONAL  TRADE. 

quent  calculations  made  in  oaiancing  tlic  account,  this  and  every  other 
sum  entered  in  the  Ningpo  pass-books  to  the  merchant's  debit  is  con- 
verted into  Ch'iangp'ing  taels  at  1.0583.  To  meet  these  dues,  Shang- 
hai taels  are  paid  in  at  Shanghai,  and  these  deposits  are  credited  to  the 
merchant  in  his  Ningpo  pass-book  inCh'iangp'ing  taels,  at  the  rate  of 
the  day  on  which  the  duty  was  due.  For  example,  25  Shanghai  taels 
paid  in  by  the  merchant  would  be  entered  to  his  credit  as  23.65  Ch'i- 
angp'ing  taels  if  the  rate  were  0.946,  or  as  23.675  Ch'iangp'ing  taels  if 
it  happened  to  be  0.947.  Thus  it  appears  that  in  the  deposits  made 
by  them,  the  tea  merchants  get  the  rate  of  the  day,  which  is  all  they 
could  wish,  and  without  the  intervening  medium  of  the  fixed  and  too 
high  rate,  1.0583;  but  in  the  amounts  entered  to  their  debit  (the  duties 
due)  the}^  have  to  submit  to  a  conversion  into  Ch'iangp'ing  taels  at  the 
high  rate,  1.0583. 

All  the  other  merchants  take  the  rate,  1,0583,  both  in  calculating 
what  is  due  from  them  and  what  they  pa}^  in  to  meet  these  dues. 
Twenty-five  Haikwan  taels  due  as  duty  is  regarded  as  26.4575  Ch'i- 
angp'ing taels,  and  this  sum  is  met  by  two  Kwochang  payments,  in 
the  same  number  of  Ch'iangp'ing  taels  or  in  dollars  at  the  day's  rate. 

There  is  thus  shown  to  be  no  discrimination  separating  Chinese  and 
foreigners.  All  pay  at  1.0583,  and  in  this  particidar  all  alike  pay  too 
mwch.  Further,  Sassoons'  have  a  fixed  rate  for  converting  Ch'iangp'ing 
taels  into  Kweiyfian  taels,  and  it  is  too  high.  But  the  firms'  account- 
ants explain  that  the  having  a  fixed  rate  saves  dispute;  they  prefer  to 
accept  a  somewhat  high  rate  rather  than  not  to  have  a  fixed  one. 
With  an  uncertain  rate  the  bank  could  constantly  claim  too  high  a  rate, 
and,  if  it  were  disputed,  "shut  up"  the  recusant  ones  by  demanding 
pa}  nient  in  ready  money,  which  Avould  be  a  great  inconvenience.  It 
comes  to  this — that  these  two  firms  pay  high  rate  as  a  sort  of  fee  for 
the  privilege  allowed  them  by  the  bank  of  paying  in  an  exceptional 
way.  Besides,  the  rate  0.9483  is  agreeable  to  them,  as  they  are  paid 
at  this  rate  for  the  opium  Avhich  they  sell. 

5.  The  present  system  works  very  satisfactoril}^  in  several  important 
respects.  It  is  in  accord  with  the  other  banking  practices  of  this  place. 
It  accepts  the  Kwochang  S3\stem,  and  thus  bears  very  lightly  on  the 
trade;  it  saves  merchants  from  having  to  bring  S3^cee  here  from  Shang- 
hai. By  means  of  the  city  bank,  T'ungch'"uan,  the  risk  and  trouble  of 
bringing  money  to  the  Customs  Bank  proper  is  prevented.  It  accom- 
modates Sassoons'  by  allowing  them  to  pay  virtually  in  Shanghai;  it 
also  trusts  the  large  tea  hongs,  so  that  they  may  pay  where  it  is  most 
convenient  for  them.  And  with  all  these  facilities  allowed,  the  bank 
has  never  been  a  loser. 

1  am  not  aware  of  any  complaints  having  been  made.  At  the  same 
time  I  am  aware  that  the  tea  hongs,  being  subject  as  they  are  to  a  con- 
stantly shifting  I'atc,  have  disputes  occasionally  with  the  Customs 
Bank  when  the  time  comes  for  clearing  up  accounts.  Hip  Mow 
Kwang's  i'ej)resontative  told  me  that  the  firms  sometimes  "cut"  the 
Customs  Bank  as  much  as  200  taels,  and  it  may  be  taken  for  granted 
that  this  would  not  be  submitted  to  were  it  not  just.  It  has  also 
reached  me  that  the  ))ank  thi-ough  whose  hands  our  confiscation  accounts 
pass  is  in  the  hal)itof  charging  unduly  iiigh  rates  to  persons  sentenced 
to  ])ay  Hnes,  This  1  can  easily  ])ut  a  sloj)  to  by  levying  tines  in  dollars, 
and  by  having  conliscated  goods  sold  in  the  same  cunvncy. 

The  first  and  the  most  (lirectl\'  practical  suggestion  that  I  have  to 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       223 

make  i.s  tliut  tlu>  rati'  of  1  llaikwan  tacl  o<(uals  1.U5.S3  Cli'iang'p'"iiig  taels 
should  be  reduced.  The  eustouis  hauker  tells  mc  that  this  rate  has 
existed  since  the  oi)enini''  of  the  oftice,  and  that  it  was  deteniiined  in 
the  followinj;  manner:  It  was  taken  for  granted  that  11 1.40  Shanghai 
taels  eciual  100  llaikwan  taels,  and  I  do  not  go  ))ehind  this  arl)itrary 
statement,  though,  by  the  way,  this  proportion  may  very  likely  prove 
on  investigation  to  l)e  incorrect.  Acce[)ting  1 1 1.10  Shanghai  taels  as 
loo  llaikwan  taels,  the  (piestion  is.  How  many  C'h'iangp'ing  taels  ecjual 
1 1  1. 40  Shanghai  taels  ^  This  depends  on  how  many  Oh'iangp'ing  taels 
etjual  1  Shanghai  taeH  The  banker  here  answers,  0. 9.5  Ch'iangp'ing 
equals  I  Shanghai  tael,  and  hence  105.83  Ch'iangp'ing  e({uals  111.40 
Shanghai  taels  eipial  100  Haikwan  taels.  Now,  the  fact  is  that  the 
average  value  of  the  Shanghai  tael  is  less  than  0.95,  as  claimed  by  the 
banker. 

T'he  average  rate  ])ased  on  Davidson  &  Co.'s  table  is  Ch'iangp'ing 
taels,  0.947327,  equals  1  Shanghai  tael;  and  l)y  this  the  proper  fixed 
rate  for  Ningpo  would  l)e  loo  Haikwan  taels  cMpial  105.53  Ch'iangp'ing 
taels. 

Similarly,  the  average  rate  based  on  the  Kiang  Yii  Ch'ang  table  is 
Ch'iangp'ing  taels  0.94<)43  eijuals  1  Shanghai  tael;  and  by  this  the 
proper  tixed  rate  for  Ningpo  would  be  100  llail^wan  taels  equal  105.43. 

Both  the  Davidson  rate  and  the  Kiang  Yii  Ch'ang  rate  are  nuich 
below  the  banker's  rate  (105. .S3).  The  Davidson  rate  is  based  on  a 
more  comprehensive  period  than  the  other,  and  would  be  the  more 
acceptable  to  the  customs  banker,  being  the  higher  of  the  two. 

The  Kung-ku  gave  me  as  the  average  value  of  the  Kweip'ing  tael 
0.945  ChiangiJ'ing;  this  would  make  the  Haikwan  tael  at  Ningpo  only 
worth  Ch'iangpMng  taels  1.05273. 

Again,  I  obtained  from  the  customs  banker  two  packages  of  svcee, 
each  of  which  he  certified  to  be  worth  10  Haikwan  taels.  These  I 
suV)mitted  to  the  Kung-ku  here,  and  they  were  pronounced  to  be  Avorth 
10.54  Chiangp'ing  taels.  This  test  would  give  105.40  as  the  correct 
rate  for  lOO  Haikwan  taels. 

There  is,  then,  evidence  enough  that  the  rate  heretofore  taken  is 
too  high,  and  in  my  oj^inion  it  is  advisa])le  to  take  the  correct  Shang- 
hai rate,  probably  something  l)elow  111.40,  and  to  determine  from  it 
a  new  rate  for  Ningpo,  in  consultation  w4th  the  Taotai,  and  on  the 
basis  of  the  current  rate  of  Shanghai  taels  at  Ningpo  for  the  past 
three  years  1875,  187(5,  and  1877. 

So  far  as  I  have  been  able  to  ascertain,  the  carrying  out  of  the  fore- 
going suggestion  would  remove  the  onl}"  thing  which  might  be  re- 
garded as  cause  for  complaint  locally. 

1  do  not  undei'stand  from  j^our  circular  that  the  points  therein 
raised  were  to  be  discussed  beyond  their  connection  with  the  "pay- 
ment of  duties  at  the  Haikwan  Bank."  But  the  foregoing  paragraphs 
have  disclosed  that  abuses  far  from  trivial  are  practiced  by  the  bank- 
ers, and  prol)al)ly  b}-  some  of  the  officials  of  the  Chinese  (jrovernment, 
in  connection  with  the  revenues  from  the  maritime  customs.  Some 
of  these  abuses  are  frauds  against  the  Government,  others  frauds 
against  the  merchants.  The  interest  on  moneys  received  as  duties 
should  go  to  the  (rovernment,  not  to  Hu  Taotai;  the  Haikwan  taels 
collected  should  all  go  to  the  Government,  and  not  alone  an  e(|ual 
number  of  taels  of  a  smaller  kind  (K'up'ing);  the  'lluif(^i  should  not 
be  charged  to  the  Government  when  there  are  no  remittances  made 


224  OOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

in  sycee,  and  the  'Huo'liao  Hhould  not  be  charged  when  there  is  no 
nieltage.  In  these  points  it  is  the  Government  principally  that  suffers, 
though  perhaps  the  charges  made  under  some  of  these  heads  are  not 
only  winked  at,  but  are  distinctly  authorized.  But  to  indicate  just 
what  ones  are  legal  and  what  illegal  is  probably  beyond  the  power  of 
any  foreigner;  nor,  I  suppose,  would  even  the  high  officers  of  the 
Government  be  certain,  save  some  exceptions,  to  thank  anyone  who 
should  expose  publicly  these  privately  well-known  abuses. 

The  only  abuse  of  those  I  have  pointed  out  which  directly  assails 
the  rights  of  the  merchant,  whether  foreign  or  native,  is  the  Sz'p'ing- 
yii,  and  the  remedy  for  this  is  certainly  in  our  hands.  We  should  see 
to  it  that  the  hxed  rates  of  exchange  are  not  allowed  to  be  a  cash  too 
high.  Readjust  these  iand  the  merchant  will  then  have  only  himself 
to  thank  if  he  submits  to  minor  "squeezes" — certainly  so  in  ports 
like  this  wheie  there  are  many  banks  and  a  Kung-ku. 

The  inquiries  I  have  made  have  opened  a  far  broader  field  of  thought 
than  I  can  possibly  venture  to  go  over,  excepting  by  way  of  the  barest 
suggestion.  Can  not  the  foreign  customs  be  made  instrumental  in 
some  degree  to  anielioi'ate  the  currency  of  the  coast  and  of  the  Yang- 
tze? In  the  south,  where  dollars  are  paid  as  duty  by  weight  accord- 
ing to  a  fixed  rate,  the  commissioners  should  be  supplied  with  sets  of 
standard  weights  from  the  board  of  revenue,  and  should  have  power 
to  inspect  and  correct  the  weights  of  the  customs  banker.  At  Foo- 
chow  a  merchant  told  me  that  he  had  found  the  weights  used  by  our 
banker  to  be  heavier  than  those  deposited  at  the  British  consulate.  It 
would  also  be  a  good  plan  to  get  out  from  Europe  a  set  of  the  most 
accurate  money  scales  for  each  office.  At  the  southern  ports  where 
the  question  of  touch  docs  not  give  any  serious  trouble,  owing  to  the 
use  of  dollars,  these  scales  would  be  an  absolute  check  on  the  )>anks, 
and  would  prove  their  superiority  to  Chinese  scales.  In  the  north, 
however,  it  will  be  difficult  to  check  the  Haikwan  banker  until  a  coin 
of  some  kind  is  minted  by  the  Government.  I  will  not  go  further  in 
this  direction  than  to  ask  whether  the  Haikwan  tael  should  not  be 
given  up  in  favor  of  the  K'up'ing  tael,  which  is  the  nearest  of  them 
all  to  being  the  same  all  over  China,  which  our  influence  might  go  far 
toward  making  exactly  the  same,  and  which  is  the  tael  in  which  all 
other  revenues  are  assessed. 

I  have,  etc.,  Edwd.  B.  Drew, 

Coiiirtiissio7ie7'  of  Customs. 

Robert  Hart,  Esq., 

Inspector-  General  of  Custo7ns,  Pekhuj. 


TAELS. 
No.  143.]  CusTOM-HousE, 

Cai>i<m,  Dccemher  20,  187 S. 

Sir:  1  have  the  honor  to  furnish  the  information  called  for  by  your 
circular  No.  32,  of  1877,  with  reference  to  the  Customs  Bank  at  this 
port. 

1.  After  the  suppression  of  the  Cohong  system  by  the  British  treaty 
of  1842,  the  Haikwan  commissioned  a  money  changer  to  open  a  bank 
for  the  rec(Mpt  of  customs  duties.  In  1844  four  more  partners  were 
added,  and  this  number  has  l)een  maintained  to  the  present  time.  The 
founder  of  the  house  has  been  dead  some  time,  but  his  place  is  tilled 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       225 

by  a  son,  Avho  i>s  superintendent  of  the  luink.  The  stanij)  used  for 
certifying"  tiie  pa^-nient  of  customs  (hities  is  oivcn  in  the  margin."  The 
first  character  in  each  set  is  the  family  name,  and  the  two  following- 
the  shop  name  of  the  different  proprietors. 

The  j)rincipal  establishment  of  the  haidv  is  situated  a])out  ten  min- 
utes' walk  fi'om  the  custom-house,  but  there  is  a  small  ))rancli  office 
in  the  street  adjoining  the  custom-house  at  which  duties  on  sundry 
cari^o  nia3'  be  paid,  but  under  certain  disadvantages  which  will  be 
explained  hereafter.  The  staff'  of  the  bank  consists  of  from  40  to  60 
persons,  and  the  official  provision  made  to  meet  the  expenses  is  a  grant 
of  8  mace  per  100  taels  of  all  duties  collected.  This  grant,  however, 
forms  a  very  small  part  of  the  income  of  the  l)ank,  which,  owing  to 
the  large  sums  of  monev  passing  through  its  hands,  and  the  power  it 
exercises  of  ffxing  the  rates  for  sycee,  must  necessarily  be  verv  large. 

Besides  its  duties  proper  as  the  receiver  of  the  customs  revenue,  the 
l)ank  engages  in  general  Inisiness.  All  checks  issued  bear  the  customs 
allowance  stamp.  This  distinction  is  probably  made  to  enable  the 
Haikwan  Bank  to  keep  up  the  fiction  of  only  receiving  duties  in  pure 
silver,  and  to  guard  against  the  revenue  which  passes  through  its  hands 
becoming  involved  in  the  event  of  unfortunate  speculations.  The  two 
branches  of  the  l)ank  are  under  the  same  management. 

2.  The  Haikwan  l)anker  professes  to  receive  duties  in  sycee  only, 
and  it  is,  of  course,  in  this  currency  that  his  accounts  are  rendered  to 
the  Haikwan.  But  a  large  portion  of  the  smaller  payments  especially 
are  made  in  dollars,  Avhich  are  received  by  weight  with  the  addition  of 
a  premium  to  make  them  up  to  sycee  standard,  Tsu-se-wen-yin.  This 
premium  varies  from  day  to  da3\  It  is  regulated  by  the  suppl}^  of 
dollars  in  the  market,  and  is  probably  larg'ely  infiuenced  by  the 
requirements  of  the  large  provincial  treasuries.  A  record  has  been 
kept  in  this  office  since  the  middle  of  last  July,  showing  the  daily 
rates  for  sj'cee — first,  as  fixed  by  the  Haikw^an  Bank  for  cashing  Haik- 
wan tael  checks  issued  in  the  name  of  (Chinese)  (e.  c/.,  the  customs 
allowance);  second,  the  rate  at  which  sycee  is  purchasable  (with  dollars) 
at  the  money  shops;  and,  third,  the  rate  at  which  dollars  are  received 
in  payment  of  duties  bv  the  branch  of  the  Haikwan  Bank  in  the  street 
adjoining  the  custom-house.  The  fluctuations  have  been  as  follows 
since  that  time:  First,  Haikwan  Bank's  rate  for  pa3'ments,  7.700  taels 
to  8.400  taels;  second,  mone}^  shop's  rate,  8.400  taels  to  10  taels;  third, 
Haikwan  Bank,  branch  office  rate  for  receipts,  9.400  taels  to  11.200 
taels.  The  rates  first  and  third,  are  simply  arbitrary.  From  the  for- 
mer the  loss  on  the  customs  allowance  exceeds  on  an  average  $300  per 
month;  from  the  latter,  the  small  shippers  who  pay  duties  at  the 
branch  office  are  overcharged  from  1  per  cent  to  li  per  cent.  The 
following  sets  of  calculations  will  show  more  clearly  the  effects  of  the 
present  system.  The  amount  to  be  paid  or  received  is  in  each  instance 
10,000  Haikwan  taels.     The  premia  are  the  rates  of  the  day. 

Haikwan  taels. 

First,  (a)  Customs  allowance 10,000 

(h)  Premium  [Haikwan  Bank  rate  for  payments],  (S.2  taels 820 

{(■)  Difference  of  .scales,  0.22  taels 22 

Local  taels  (dollar  silver) 10,  842 

Dollars,  at  7.L7  taels  =  $15,121.34. 

«In  Chinese  characters. 
S.  Doc.  128,  58-3 15 


22(^  GOLD    STANDARD    IN    INTERNATIONAL    TRAD?]. 

Note. — The  Haikwan  scales  are  0.4  taels  per  cent  heavier  than  the 
ordinary  local  scales,  but  the  banker  onh^  allows  us  0.i^2  taels  per  cent. 
The  conversion  into  dollars  is  made  at  0.717  taels,  whereas  the  average 
weight  is  about  0.7.1.0  taels. 

Haikwan  taels. 

Second,   (a)  Unties  to  be  paid 10, 000 

(h)  Preniiuni  [money  shop  rate]  at  9.2  taels 920 

(c)  Difference  of  scale,  0.4  taels  per  cent 40 

Local  taels  (dollar  silver) 10,  960 

Dollars  at  0.7.1.0  taels  =  $15,4.36.62. 

Note. — A  comparison  of  first  and  second  will  show  that  a  loss  of 
$315.28  would  be  sustained  on  the  customs  allowance  for  one  month. 
On  the  30th  November,  when  the  rates  were  the  same  as  at  present, 
Mr.  Chalmers  saw  the  private  memorandum  liook  of  a  shipper,  which 
showed  that  he  had  paid  duty  that  day  at  the  rate  of  9.6.0.0  taels  pre- 
mium, or  4  per  cent  more  than  the  current  market  rate. 

Haikwan  taels. 
Third.  1  )uties  to  be  paid 10, 000 

Preminni  [branch  office  rate],  10.500  taels 1, 050 

Difference  of  scale,  0.4  taels  per  cent 40 

Local  taels 11,  090 

Dollars  at  0.7.1.0  =  $15,619.72. 

It  will  be  seen  from  the  above  calculations  that  the  Haikwan  Bank 
is  not  entirely  dependent  on  the  official  allowance  for  its  maintenance. 
It  is  true  that  the  larger  shippers,  by  arranging  their  payments  through 
other  banks,  escape  these  exactions;  but  even  when  payments  are  made 
in  sycee,  a  small  percentage  is  charged  on  account  of  the  alleged  impu- 
rit}^  of  the  silver. 

A  special  charge  of  0.1.6.2  taels  per  pieul  is  made  on  all  tea  duties 
collected  for  the  ostensible  benefit  of  an  institution.  The  money  really 
goes  to  Howkua  as  the  representative  of  the  13  Cohong  merchants, 
and  is  appropriated  under  the  sanction  of  the  provincial  authorities  to 
liquidate  a  large  claim  they  have  against  the  provincial  government 
for  advances  (2  million  taels)  made  at  the  time  the  Elliot  indemnity 
was  paid  in  1842.  The  charge  was  first  levied  in  1843  at  the  rate  of 
0.3.0.0  taels,  l)ut  was  reduced  in  1857  to  0.1.6.2  taels,  the  present  rate. 
The  annual  yield  is  now  a  little  over  15,000  taels;  l)ut  in  former  days, 
when  (-anton  was  the  chief  seat  of  the  tea  trade,  and  the  charge  nearly 
double  the  ))re.sent  rate,  the  income  derived  must  have  been  very 
nearly  100,(H»()  taels  a  year.  A  small  portion — 1  have  not  been  able  to 
ascertain  how  nuu-h — is  set  aside  for  the  support  of  the  institution 
already  mentioned. 

3.  As  stated  above,  the  official  weights  used  by  the  Haikwan  banker 
are  0.4  per  cent  heavier  than  the  weights  of  the  local  scale. 

4.  Nearly  all  the  customs  duties  are  paid  by  Chinese,  as  it  has 
become  the  custom  hcrc^  for  foreigners  to  ])uy  produce  duty  paid,  and 
consequently  th(>  legality  of  tlie  special  charge  on  tea  duties  and  the 
othei-  exactions  in  excess  of"  market  rates  have  not,  so  fai"  as  I  am 
awai-e,  been  called  in  (juestion.  It  is  even  doubtful  whether  the  for- 
(Mgn  m(>i'chants  hei'c,  with  th(>ir  ignorance  of  Chinese  and  implicit 
confidence  in  their  compradors,  are  aware  of  the  extra  charges  to 
which  they  are,  at  least  indirectly,  subjected. 


(iOLD    STANDAKJ)    IN    INTKRNATIONAL    TRADK.  227 

5.  The  Haikwuii  Bank  appoars  to  ho  fairly  well  inanag'ed,  and  to 
p(n-forni  its  duties  witliout  iiiteh  or  delay.  Its  position  here  is  so 
powerfid  that  native  merchants  would  hardly  venture  to  challenge  its 
"s(jueezes,"  even  if  they  were  heavier  than  they  are  now.  The  best 
remedy  would  be  the  issue  of  a  Haikwan  tael  currency  by  the  Imperial 
(lovernment,  declared  to  be  a  legal  tender  for  customs  duties.  This 
would  do  away  at  once  with  all  questions  and  disputes  about  weight 
and  purity,  and  would  be  the  means  of  introducing  a  r(>form  which 
would  in  time  make  its  influence  felt  in  every  village  throughout  the 
Empire. 

I  am,  etc.,  William  Cartwright, 

Commissioner  of  CustoTm. 
Robert  Hart,  Esc^., 

Inspector-  General  of  Customs^  Pehivy. 


(h)  8ycee:  AVeight,  Value,  Touch — V.  Office  Series:  Customs  Papers  No.  47. 

[Translation  of  a  memorandum  on  the  weights  and  monetary  system  of  Shanghai,  drawn  up  by 
Mons.  G.  Pletsch,  of  the  Comptoir  d'Escompte  de  Paris,  and  dated  July,  1864.] 

Weights. 

The  tael  is  a  weight  which  is  in  use  all  over  China;  its  weight  varies 
considerably  in  the  different  cities  of  the  Empire. 

In  transactions  between  Chinese  and  foreigners  the  Canton  tael  is 
the  one  in  general  use,  as  the  port  from  which  it  takes  its  name  is  the 
one  which  was  iirst  opened  to  foreign  trade  in  China. 

In  Shanghai  use  is  made  in  business  of  two  weights:  (1)  The  Canton 
tael,  for  goods  imported,  viz,  for  silver  in  bars,  whether  from  P]ngland 
France,  or  ilmerica.  (2)  The  Shanghai  tael,  for  goods  of  Chinese 
origin,  viz,  for  gold,  bar  and  leaf;  also  for  "sycee"  silver.  This 
question,  however,  will  be  gone  into  further  on.  According  to  local 
usage  100  Canton  taels  equal  102i  Shanghai  taels. 

I.  canton  tael. 

According  to  the  supplementary  Franco-Chinese  and  Anglo-Chinese 
treaties  signed  at  Shanghai  in  November,  1858,  the  Canton  tael  ought  to 
weigh  in  French  weight,  87.783  grams;  in  English  weight,  1.333  ounces 
avoirdupois  equals  1.215  ounces  troy,  or  equals  24.30  pennyweights, 
equals  583.20  grains.  These  proportions  are  based  on  the  convention 
made  at  Canton  in  1770  between  the  supercargoes  of  the  old  East  India 
Company  and  the  privileged  Chinese  merchants  who  formerly  there  pos- 
sessed the  monopoly  of  the  trade  with  foreigners.  But  in  reality  the 
Canton  tael  as  in  ordinary  use  in  China  is  one-half  per  cent  lighter  than 
the  above-mentioned  standard,  and  does  not  weigh  more  than  37.58 
French  grams  (according  to  the  scales  of  the  agency  of  the  Comptoir 
d'Escompte  de  Paris);  according  to  the  basis  adopted  by  the  English 
banks,  1.208  ounces  troy  weight,  24.16  pennyweights,  .579.84  grains; 
3,000  taels  equal  3(»2  pounds  troy,  or,  better,  equal  3,(524  ounces  troy; 
according  to  the  standard  of  India  ecpials  3.221:t  tolahs  (the  weight 
known  in  India  as  a  tolah  being  180  grains  troy  or  11.662  grams). 

According  to  Article  XXVI  of  the  French  treaty  of  June  27.  1858, 
and  Article  XXIV  of  the  English  treaty  of  the  same  month,  the  head 


228  GOLD    STANDAKD    IN    INTERNATIONAL    TRADE. 

of  the  custonis  in  each  of  the  ports  opened  to  trade  ought  to  receive 
for  liimeelf  and  also  deposit  at  the  French  and  English  consulates  offi- 
cial (legales)  scales  both  for  goods  and  money,  as  well  as  weights  and 
measures  in  exact  conformity  with  the  weights  and  measures  in  use  at 
the  Canton  customs,  marked  with  a  stamp  and  a  certificate  (cachet) 
stating  that  the}^  so  conform  to  their  standard.  These  standards  were 
intended  to  serve  as  a  basis  for  all  payments  of  customs  duties  or  to 
the  Chinese  Government;  also  that  recourse  might  be  had  to  them  in 
all  cases  where  there  might  be  disagreement  as  to  the  weight  or  meas- 
ure of  goods. 

II.    SHANGHAI   TAEL. 

Having  found  that,  contrary  to  the  above-mentioned  stipulation,  the 
Chinese  Government  has  not  deposited  at  the  consulates  any  standards 
of  weights  and  that  the  weights  in  ordinary  local  use  do  not  bear  any 
oflicial  stamp  of  the  Chinese  Government,  which  does  not  usuall}^  inter- 
fere in  such  matters,  I  went  to  the  Chinese  custom-house  of  this  city  to 
compare  the  weights  which  are  in  use  there  with  those  emploj^ed  by 
the  agency  of  the  Comptoir  d'Escompte.  After  making  myself 
acquainted  with  the  conformity  of  the  two  weights,  I  made  with  some 
legal  French  weights  a  series  of  comparative  weighings,  which  give 
the  result  that  the  Shanghai  tael  weighs  36.64  French  gTams;  565.70 
grains  troy  (perhaps  only  565.43  grains — the  English,  as  it  appears, 
reckon  it  as  566  grains  in  round  numbers);  3.143  Indian  tolahs. 

The  Shanghai  tael  is  therefore  a  real  weight,  and  not  one  merely  in 
name,  as  was  told  me  on  m}^  arrival  here. 

At  the  Shanghai  custom-house  I  found  another  weight,  which  is 
called  the  "Haikwan"  or  ""customs"  tael.  One  hundred  Haikwan 
taels  weigh  102.90  Shanghai  taels.  This  tael,  it  appears,  is  not  in  use 
commercially. 

III.    WEIGHTS    IN    USE    FOR    MERCHANDISE. 

Besides  the  tael,  there  are  other  weights  in  use  in  China  for  goods. 
Subjoined  is  a  list.     The  tael  is  the  unit. 

1  grain  millet  is  a  shu. 
10  shu   =1  lei. 

10  lei     =1  chu  (pearl). 

24  chu   =1  liang  (tael)  =1.333  ounces  avoirdupois  or  37.873  grams. 

16  liang=l  chin  (catty)  =  1.333  pounds  avoirdupois  or  604.53  grams. 

2  chin  =1  yin. 
30  chin  =1  chiin. 

100  chin  =1  tan  (picul)    =133J  pounds  avoirdupois  or  60.453  kilograms. 
120  chin  =1  shih  (stone)=:159.99  pounds  avoirdupois  or  72.544  kilograms. 

In  dealings  where  valuable  goods  are  concerned  the  tael  is  subdi- 
vided into  decimal  fractional  parts,  as  indicated  in  the  table  below, 
where  the  tael  is  dealt  with  as  a  monetaiy  designation. 

Monetary  system. 

I.    MONEYS. 

The  tael  is  not  only  a  weight,  it  is  also  an  ideal  value  or  monetary 
account  term  (monnaie  de  compte)  in  use  in  all  the  ports  of  north  China. 

In  the  Englisii  colony  of  Hongkong  the  current  value  is  the  Mexi- 
can dollar,  but  I  am  ignorant  as  to  what  is  the  usage  in  the  (.hinese 
southern  ports,  such  as  Canton,  Foochow,  Araoy,  and  Formosa. 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 


229 


The  value  of  the  tael  varies  in  the  different  cities  in  the  same  way  as 
its  weight.  Considered  in  either  .sense  there  are  considerable  differ- 
ences l)etween  tlie  taols  of  Peking,  Tientsin,  Hankow,  Kiukiang, 
Siiano-liai.  C'hefoo,  Ningpo,  etc.  To  estimate  these  differences  prop- 
erly it  would  be  necessary  to  g-ive  oneself  up  specially  to  the  study  of 
the  usage  of  each  town.     This  is  how  the  case  stands  in  Shanghai. 

(//)  Xoiiuual  iDOHei/. — Accounts  are  reckoned  and  ki^pt  in  Shanghai 
currency  taels.  This  standard  of  value  serves  ecjually  well  for  exchange 
or  ordinary  businc^ss  (matieres  et  marchandises). 

The  subdivisions  of  the  tael  and  their  relations  are: 


Tael 
(Liang). 

Mace 
(Ch'ien). 

Candarin 

(Fen). 

Cash 

(Li). 

1 

10 

1 

100 
10 
1 

1,000 

100 

10 

(5)  Actual  money. — The  only  actual  coined  money  is  the  li  (small  coins 
of  copper),  called  by  the  English  "cash"  and  by  the  French  sapeque 
(from  the  Portuguese  word  sapeca). 

It  has  been  in  use  in  China  for  more  than  C,000  years.  Its  value  as 
mone}^  is  reckoned,  as  stated  above,  as  the  one-thousandth  part  of  a 
tael:  in  reality,  it  has  deteriorated,  and  its  price  is  variable,  according 
to  the  demand  for  the  interior.  At  the  moment  the  rate  is  1,370  cash 
for  1  tael,  which  gives  the  value  of  a  single  cash  as  a  little  over  half  a 
French  centime. 


II.    MONEY   IN   CIRCULATION. 


Sycee. — For  commercial  transactions  on  a  large  scale  a  monetar}?^ 
unit  .so  small  as  a  cash  would  be  of  no  use.  All  payments  are  made  in 
silver  bullion  (s3'cee),  a  term  employed  in  banking  to  express  fine  sil- 
ver, in  consequence  of  its  resemblance  to  sai  ssu,  "fine  silk." 

The  expression  in  ordinary  use  among  the  natives  is  not,  however, 
S3"cee,  but  wen  3an,  "pure  silver."  The  ingots  are  of  different  sizes. 
The  ordinary  weight  is  about  50  taels;  there  are  some  of  5  taels  weight 
or  less.  Their  form  bears  some  resemblance  to  that  of  the  Chinese 
shoe,  from  which  "shoes"  is  the  designation  oi;dinarily  given  them  by 
foreigners. 

I  shall  keep  to  this  expression,  in  order  to  distinguish  these  Chinese 
ingots  from  bars  coming  from  Europe  and  America. 

Although  these  shoes  of  sycee  are  the  principal  element  in  the  mon- 
etary circulation  in  China,  the  Chinese  Government  does  not  take  any 
cognizance  of  the  making  or  issue  of  them,  which  matter  is  in  the 
hands  of  those  who  cast  them  and  of  the  bankers  and  money  changers. 

The  money  cast  into  shoes  is  as  much  made  from  ingots  and  moneys 
imported  from  foreign  parts  as  from  native  sources,  but  it  is  impossi- 
ble to  estimate  how  much  China  can  draw  annually  from  its  own  mines. 

At  Hoshan  (Yunnan),  and  at  Tungsing,  on  the  borders  of  Cochin 
China,  there  are  silver  mines  farmed  out  by  the  Government,  the 
renters  of  which  employ  from  40.000  to  50,000  workmen.  The  annual 
product  is  estimated  at  2,000,000  taels.  There  are,  besides,  other 
mines  in  the  interior  of  the  Empire  less  rich  than  these  if  considered 
individually,  but  whose  united  product  would  be,  in  all  probability, 
something  considerable. 


230  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

Refined  .silver  is  cast  into  s^ycee.  The  name  of  the  caster  and  the 
date  and  place  of  the  casting  are  stamped  on  the  shoes. 

For  any  fraud  discovered  afterwards,  no  matter  at  what  period,  tlie 
founder  remains  responsilde  and  liable  to  severe  punishment. 

On  leaving-  the  hands  of  the  founder  the  shoes  are  submitted  to  the 
inspection  of  a  Government  officer  or  public  appraiser,  called  Kung-ku. 
After  having  examined  them,  he  places  on  them  two  marks  in  Chinese 
ink,  one  to  indicate  the  weight,  the  other  to  indicate  the  fineness. 
Marked  with  this  official  stamp  (cachet)  the  shoes  go  into  circulation 
as  a  current  value. 

The  assays  of  the  Chinese  are  exceedingly  primitive  and  imperfect; 
shoes  are  received  always  and  everywhere  in  payment  without  ques- 
tion at  a  conventional  value  based  on  the  marks  of  the  Kung-ku,  which 
will  be  explained  further  on. 

The  fineness  of  the  shoes  of  silver  taken  separately  is  not  uniform, 
but  operating  on  some  quantities  experience  has  shown  that  their 
average  standard  is  ninety-eight  one-hundredths  or  98  touch — touch, 
as  they  say  here,  being  equivalent  to  assay. 

The  designation  of  the  standard  of  fineness  is,  then,  as  in  France,  98 
touch,  signifying  ninety-eight  one  hundredths  or  nine  hundred  and 
eight}^  one  thousandths. 

Three  remittances  of  silver  received  from  Shanghai  by  the  agency 
in  Calcutta  on  the  29th  May  and  15th  and  20th  December,  1862,  and 
melted  at  the  Calcutta  mint  were  recognized  as  of  an  average  fineness 
of  15i  to  16  B,  i.  e.,  nine  hundred  and  eighty-two  one  thousandths. 

To  wit :  standard  of  silver  in  India  220  —240        220—240 
Better        15i  16 


235^-240         236-240 


981.25  983.33 


To  form  a  basis  on  which  to  establish  the  value  of  sycee  silver  the 
Chinese  take  the  weight  and  the  touch  marked  on  the  shoes  by  the 
Kung-ku,  making  therefore  some  odd  enough  calculations,  as  ma}'  be 
seen  from  some  tigure!^  which  follow. 

Chinese  memorandum,  giving  weight,  fineness,  and  value  of  38  shoes 


«This  seems  to  mean  as  follows : 

The  standard  of  silver  in  currency  in  India  is  220  parts  of  pure  silver  in  240  of 
coinage;  to  put  this  in  decimal  form  it  means  that  1,000  parts  contain  916.66  of  pure 
silver. 

Betterness  seems  to  mean  that  240  i)arts  of  a  mixture  contain  (220+B)  parts  of 
liure  silver. 

In  this  instance  15o  betterness  put  in  decdmal  form  =15^  parts  in  240  or  64.583  per 
1,000. 

In  the  same  way  :  16  betterness  =16  parts  in  240  or  66.66  ])er  1,000. 

916.66,.       ,  ,      15i      64.583     916.666+64.583  .      ^, 

therefore,  -.   ,-,,., y  nne  better  by  ^in  or  y  ^^..,.  = 0)00 ~  approxmiately 

981.25  ' 

y^O^  as  above. 

983. 33  982 

Similarly,  a  betterness  of  16  produces  ■.  qqq  ,  or  an  average  of  about  ^  qqa  as  given 

above. 


GOLD    SlTANDAKl)    IN     INTKUNATIONAL    TRADK. 


231 


of  s,ycec  counted  and  verilied  at  the  ageiic}'  of  the  Coinptoird'Plscompte 
de  Paris  at  Shanghai  on  the  16th  March,  1864: 


Premium 

Premium 

Premium 

Weight  in 

for  better- 

Weight  in 

for  better- 

Weight  in 

for  better- 

Shoes. 

Shanghni 
taels. 

nes.'i  in 

Shangliai 

tael.s. 

Shoes. 

Shanghai 
taels. 

ne.ss  in 

Shanghai 

taels. 

Shoes. 

Shanghai 
taels. 

ness  in 

Shanghai 

taels. 

49.90 

2.60 

49.83 

2.10 

48.94 

1.40 

51. 15 

2.80 

50. 06 

2.65 

49.93 

2.40 

49. 95 

2.60 

50.65 

0.80 

50. 8H 

2.30 

49. 87 

1.90 

50.01 

2.00 

.60. 02 

2.50 

46.30 

1.90 

50.80 

2.75 

.60. 24 

2.  75 

49.67 

2. 20 

60. 00 

2.50 

.60.  43 

2.70 

50.94 

2. 75 

.51.09 

2.75 

60. 00 

2.00 

50. 56 

2.10 

.51. 42 

2.80 

49.  .68 

2.10 

49.98 

2.60 

.60. 26 

2.50 

50. 68 

2.30 

50.i;o 

2.75 

41.52 

1.65 

.61.08 

2.80 

49.57 

2.10 

50. 64 

2.50 

50.  97 

2.75 

1  50 

.60  4'' 

2.65 
2.80 

60.90 

2.80 

.51.42 

38 

1,890.12 

89.70 

49.94 

2.65 

In  all.  1,979.82  taels  of  Shanghai  weight,  equalling,  at  the  rate  of 
100  taels  currency  equals  98  taels  of  Shanghai  weight  (fixed  rate), 
2,020.22  taels  current. 

Memorandum  of  a  similar  verification  made  in  May,  1861,  at  the 
Agra  Bank,  Shanghai,  which  has  had  the  goodness  to  place  the  in- 
formation at  my  disposal : 

( 1 )  69  shoes  weighing 3, 000. 48  taels  8hanghai  weight. 

(2)  Premium  for  betterness 140.50     ,,  ,,  ,, 


3, 140.  98 


(3)   At-V/ 


3,  205.  01  Shanghai  currency  taels. 


Memorandum  of  another  verification  made  in  June,  1861,  at  the 
agency  of  the  (Jomptoir  d'Escompte  : 


(1)  20  shoes  weighing 

(2)  Premium  for  betterness 


980.  54  taels  Shanghai  weight. 
48.60     ,, 


1,029.14 


(3)  At  -\%°-  =  1,  050. 14  Shanghai  currency  taels. 

Few  persons  are  familiar  with  these  calculations,  many  are  entirely 
ignorant  of  them,  others  have  adopted  them  mechanically  without  tak- 
ing any  notice  of  the  basis  on  which  they  stand.  Strange  to  say,  I 
have  never  found  in  Shanghai  anyone  who  has  })een  able  to  give  me 
conclusive  explanations  in  this  particular  matter. 

Left  to  my  own  reflections  and  calculations,  I  have  arrived  b}^  induc- 
tion at  the  following  theory,  which  appears  to  me  to  be  in  perfect 
accord  with  the  actual  state  of  the  case. 

In  each  of  these  calculations,  which  are  alwa3's  the  .same,  there  are 
three  striking  figures  which  present  themselves: 

(1)  The  first  inf^licates  the  weight  of  the  shoes  in  Sanghai  taels, 

(2)  The  second  expresses  a  ditterence  between  two  degrees  of  fine- 
ness of  about  Ij  to  5  per  cent,  the  real  standai'd  of  the  shoes  being 
98.  It  appears  to  me  that  after  deducting  this  difference  of  4.5,  the 
remaining  cipher,  98.5,  would  be  the  standard  touch  in  the  sense  indi- 
cated farther  on. 


232 


GOLD    STANDAED    IN    INTERNATIONAL    TRADE. 


In  practice  this  calculation  bears  a  close  resemblance  to  that  in  use 
in  England,  where  the  standard  touch  is  the  invariable  basis  of  price 
for  precious  metals — when  an  ingot  is  of  a  touch  above  or  below,  it  is 
brought  by  a  calculation  to  the  standard  touch  by  adding  or  substract- 
ing  a  quantity  of  proportional  weight. 

(3)  The  third  cipher  indicates  the  conventional  value  of  the  shoes  in 
currency  taels  of  Shanghai  at  the  fixed  rate  of  100  current  taels  for  98 
taels  weight  of  Shanghai  taels. 

By  analysing  and  recasting  into  a  European  mould  these  calculations, 
at  first  sight  so  confused,  I  haAC  arrived  at  the  following  results: 

? Taels  weight  Shanghai.     1,000  currency  taels.  ?Taels.         1,000  currency  taels. 

2,020.22  1,890.60  or  better  2,020.22        1,890.60 


935.60  taels  (of  a  touch  of  98)  100 


98 


916.88  taels  of  !§§§ 


?Taels  weight  Shanghai.     1,000  currency  taels.  ?Taels. 

3,205.01  3,000.48  or  better  3,205.01 


936.18  taels  (of  a  touch  of  98)  100 


1,000  currency  taels. 
3,000.48 

98 


917.14  taels  of  iH§ 


? Taels  weight  Shanghai.     1,000  currency  tael  ?  Taels. 

1,050.14  980.54  "     or      tter  1,050.14 


1,000  currency  taels. 
980.54 


933.72  taels  (of  a  touch  of  98)  100 


915.05  taels  of  i^fg 


Mean    935.40  of  xVo  or  916.66  of  if^ 

It  will  be  seen  that  this  figure  varies  infinitely  without  the  variations 
exceeding  some  thousandths. 

After  a  number  of  weighings  and  calculations,  which  have  always 
come  to  the  same  result,  1  believe  I  can  assert  that  the  following  pro- 
portions represent  correctly  the  actual  basis  of  the  monetary  system 
of  Shanghai. 

A  quantity  of  silver  weighing  935.40  Shanghai  taels  of  the  denom- 
ination jW — i.  e.,  916.66  Shanghai  taels  (weight)  of  the  denomination 
TFifo — has  the  conventional  value  of  1,000  taels  currency.  In  other 
words,  1  tael  of  silver  Shiinghai  weight  of  the  standard  denomination 

9354       916| 

'qoQQ  or  TTvrT/j  is   equivalent  to  1   tael  of  Shanghai  currency  within  a 

margin  of  2  or  3  thousands,  more  or  less. 

If  a  Shanghai  currency  tael,  instead  of  being  a  simple  "mone}"  of 

account,"  were  good  and  proper  silver  money  struck  into  real  coin  it 

would  weigh  1  Shanghai  tael  or  36.64  grams,  its  standard  of  touclu 

916" 
would  be  ^-TTT^p  and  its  intrinsic  value,  francs  7.35yVo  (calculating silver 

at  the  par  value  of  francs  218.89  for  1  kilogram  of  ttt^o)- 

Calculation:  (.r)  ?  francs=l,000  currenc}^  taels. 

1,000  currency  taels=916if  taels  weight  of  Slianghai  fineness. 
1=36.64  grams. 
1,000=1  kilogram. 
1=218.89. 
10,000=a;  (francs)  =9161x36.64x218.89 

_916ix36.64x218.89     ^or^  lo 
10,000         ^=735.18 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  233 

intrinsic  par  value,  premium  on  silver  at  Paris  and  frcig-ht  from  Paris 
to  Shan^iliai  not  included. 

liut  as  the  currency  tael  oi"  Shano'hai  is  no  moi'c  than  an  ideal  value, 
it  cannot  l)e  better  delined  tiuin  by  designating"  it  as  a  sign  represent- 
ing th(^  ])rop()rti()n  of  weight  and  fineness  above  mentioned.. 

Let  us  now  examine  if  the  lesult  obtained  at  the  Calcutta  Mint  con- 
hrms  the  theory  set  forth  above.  According  to  this  theory,  the  result 
ought  to  be  as  follows: 

(.i)  ?  rupees=100  currency  taels. 

1,000=9161  taels  weight  Shanghai  fineness. 

1=^.'>.143  tolahH  line. 
91()t=l,000  tolaiis  standard. 
1=1  rupee. 

(.t)  =314.30  rupees. 

Less  mintage,  2. 1  per  cent 6. 60\     „  .,,, 

Loss  in  casting,  2  per  mill 0. 63 j      ' ' "' ' 

307.07  rupees. 

Commission \  per  cent. 

Freight 1 2         , , 

Insurance f        ,, 

Landing  and  shipping i        ,,  ' 

Contingencies |        ,, 

Interest  (note  below). 

2f        „  =     8.07 

Net 299. 00  rupees. 

See  now  the  actual  result: 

1862  cost  at  Shanghai. 

Sent  first  time       Tls.  48,  852. 13  =  Rs.  149,  796.    6. 11  or  Rs.  306.  63  per  Tls.  100. 
Sent  second  time  10,000        =  :30,574. 11.    9  305.75  100. 

Sent  third  time  16. 500        =  50, 469.    6.    7  305. 88  100. 

Total  Tls.  75,  352. 13  =  Rs.  230,  840.    9.    3  or  Rs.  306.  35  average. 
From  this  deduct,  as  above,  2|-  per  cent.       =  8.  04  ^ 

Rs.  298.  31 

(Loss  of  interest  for  one  month  is  compensated  for  by  the  interest 
gained  on  the  drafts  made  against  the  sycee.) 

To  two-thousandths  or  thereabouts  the  reality  and  the  theory  agree. 

These  small  differences  will  always  exist;  they  are  unimportant  and 
result  from  the  fact  that  the  purity,  and  even  the  standard,  of  sycee 
silver  is  not  always  the  same. 

The  conclusions  to  l)e  drawn  from  the  above  calculations  have  some 
interest: 

(I)  The  standard  of  the  currency  tael  of  Shanghai  of  tf:?^^  is  in 

•'  '^  1000 

conformitj"  with  the  rupee  standard  of  220-240. 

i'A)  The  cost  of  Shanghai  sycee  and  its  out-turn  at  the  mint  receiving 
houses  in  India  stand  on  lixed  leases. 

(3)  The  intrinsic  par  value  (per  Shanghai  100  taels  to  2  per  mil  or 
thereabouts)  of  lis.  'AU.dO  and  the  net  par  value  of  Rs.  291)  (298  at  the 
lowest)  is  the  rate  which  represents  a  minimum  out-turn  on  which  an 
exporter  of  sycee  can  count  in  any  case. 

The  result  of  this  is  that  whenever  the  exchange  for  three  days' 
sight  l)ank  })ills  on  Calcutta  or  Boml)a3' falls  l)elow  298,  drafts  may  be 
sold  and  covered    by  sycee  with  the  absolute  certainty  of  making 


234 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 


mone3^     In  1861  and  1862  the  course  of  exchange  was  often  enough 
in  this  position. 

Whether  or  not  my  theory  relative  to  the  monetary  s\'stem  of  this 
place  be  conlirmed  or  moditied  by  experience,  this  is  certain:  The  v^er- 
itication  of.  a  box  of  sycee  does  not  present  any  difficulty,  and  the 
operation  can  be  performed  without  its  being  necessary  to  have  any- 
thing to  say  to  or  to  be  done  by  the  comprador.    Rules  to  be  followed: 

(1)  Verify  your  weights  and  assure  yourself  that  your  Shanghai  tael 
has  the  required  weight  of  36.64  grams. 

(2)  Then  weigh  your  shoes;  ascertain  the  total  weight  and  calculate 
the  value,  reckoning  100  taels  current  for  93.54  Shanghai  taels 
(weight). 

In  this  way  you  will  be  sure  of  finding  out  to  a  few  thousands  the 
current  value  of  3"our  sycee. 

When  a  great  number  of  shoes  pass  through  one's  hands  such  an 
operation  can  not  take  place  every  day,  but  in  any  well-ordered  finan- 
cial establishment  it  ought  to  be  made  at  least  once  or  twice  a  month, 
it  being  of  course  understood  that  a  daily  approximate  verification 
should  be  made. 

The  entire  mechanism  of  China  for  keeping  money  in  motion  is 
extremely  crude  and  inconvenient.  Silver  is  ordinarily  packed  in 
boxes,  each  containing  about  60  shoes,  weighing  altogether  a  little 
over  3,000  taels  or  110  kilograms.  To  carry  one  such  case  two  coolies 
must  be  paid,  by  the  trip,  at  the  rate  of  50  cash  (25  centimes  French 
money)  a  head. 

To  pay  100,000  taels  (800,000  francs)  66  coolies  are  consequently 
required. 

From  a  bank  to  a  private  person  this  expenditure  is  charged  to  the 
latter;  from  one  bank  to  another,  to  the  one  buying. 

One  can  readily  imagine  the  inconveniences  of  such  a  S3\stem.  The 
simplest  means  of  obviating  it  would  be  the  establishment  of  a  clearing 
house,  which  would,  so  to  speak,  represent  generally  the  coffers  of  all 
the  bankers  and  merchants,  through  the  medium  of  which  they  would 
effect  all  their  receipts  and  payments;  but  the  place  is  not  yet  ripe  for 
institutions  of  this  sort. 

Some  of  the  English  banks  issue  bank  notes  payable  to  bearer,  but 
1  do  not  know  to  what  extent  or  if  the  notes  issued  remain  long  in 
circulation. 

Shanghai,  Juh/^  1864-. 


Weighing  trial,  August,  1880, 
SHANGHAI  TAEL. 


Weight  in  grains. 


Weight  in  grams  (0.0648=1  grain). 


(1)  According  to  Mr.  Veitch.of  the  Hong- 

kong and  Shanghai  Banking  Cor- 
poration    565. 973 

(2)  Bv  weighing  trials  at  this  office  ob- 

tained   564.229 

(3)  Average 665. 101 


(1)  No  information  obtainable. 

(2)  By  calculation  of  Mr.  Veitch's  state- 

ment,.565.973grainsx0.0648gram..  36. (;750.')04 

(3)  Bv  calculation  of  what  1  found  the 

Shanghai    tael,    564.229    grainsx 
0.0(i48gram 36.562 

(4)  By  weighing  trials  at  this  otlicc  ob- 

"tained 36. 555 

(5)  Average 36.59735 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE, 


235 


Weiglibuj  trial,  August,  ISSO — Continued. 
HAIKWAN  TAEL. 


Weight  in  grains. 


Weight  in  grams  (0.0648=1  grain). 


( 1 )  According    to    the    Hongkong   and 

Shanghai  Banlcing  Corporation, 
102.90  Shanghai  taels=100  haikwan 
taels,  and  1  Shanghai  tael  =565.973 
grains:  thus,  1  Haikwan  tael 582. 3862 

(2)  Ac<'()rdingtii  Mr.Veitcli.of  the  Hong- 

kong and  Shanghai  Banking  Cor- 
poration    581. C30 

(3)  Bv  weighing  trials  at  this  office  ob- 

tained    581. 938 


(4)  Average 581. 984 


(1)  No  information  obtainable. 


(2)  By  calculation  of  Mr.  Veiteh'.s  state- 

ment, 581.680  grains x0.0t>48  gram. .  37. 689624 

(3)  By  calculation  of  what  I  found  the 

Haikwan  tael , 581. 938  g rains  X  0.0648 

gram 37. 709G 

(4)  By  weighing  trials  at  this  office  ob- 

tained    37. 680 

(5)  Average 37. 69504 


K'U-P'ING  TAEL. 


(1)  According  to  the  Hongkong  and 

Shanghai  Banking  (Corporation, 
101.80  Shanghai  taels  =  100  K'u- 
p'ing  taels,  and  1  Shanghai  tael  = 
565.973  grains;  thus,  1  K'u-p'ing 
tael 576. 160514 

(2)  The  Hongkongand  Shanghai  Bank- 

ing Corporation  can  not  give  any 
information  respecting  the  K'u- 
p'ing  tael. 

(3)  By  weighing  trials  at  this  office 

obtained 576. 339 


(4)  Average 576. '2497 


(1)  No  information  obtainable. 


(2)  By  calculation  of   weight   given    by 

Hongkong  and  Shanghai  Banking 
Corporation,  576.1605  grainsxO.0648 
gram 37. 3352 

(3)  By  calculation  of  what  I  found  the 

K'u-p'ing  tael,  576.339  grainsxO.OOlS 
gram 37. 336 

(4)  By  weighing  trials  at  this  office  ob- 

tained with  two  different  weights— 

1  tael  weight 37. 320 

6  mace  and  4  mace  (=1  tael) 37.258 

(5)  Average 37. 3173 


TOUCH  OR  FINENESS. 

There  is  no  positive  standard  of  touch  or  fineness  for  the  different 
taels. 

g.  h.  noetzli. 
Statistical  Department, 

Shanghai,  August  ^5,  1880. 


Neio  weighing  trial,  September,  1880. 
SHANGHAI  TAEL. 


Weight  in  grains. 


Weight  in  grams  (0.0648=1  grain). 


(1)1  tael  weighed 564. 954 

2  taels  weighed 1, 130.  '201 

1  tael=      565. 100 

3  taels  weighed 1,695.448 

ltael=      565.149 

5  mace  weighed 282. 614 

ltael=      565.228 


(1)  1  tael  weighed  . 

2  taels  weighed.. 

3  taels  weighed.. 
5  mace  weighed . 


Average 565. 117 


(2)  .Vccording    to  the    information  of 

Mr.  Veitch.  (if  the  Hongkongand 
Shanghai  Banking  Corporation..      565.973 

(3)  By  my  first  wcigliing  trial,  28th  Au- 

gust, 1880  (  weights  procured  from 
Hongkong  and  Shanghai  Bank- 
ing Corporation) 564. 229 


1  tael  = 
1  tael  = 
1  taei  = 


Average 

No  information  obtainable  as  to  the 
weight  in  grams. 

(2)  By  calculation  of  Mr.  Veitch's  state- 

men  t ,  565. 973  grains  X  0.0648  gram . 

(3)  By  my  first  weighing  trial,  28th  Au- 

gust, 1880 


(4)  By  calculation,  665.117  grainsxO.0648 
g^m 


36.590 
73. 117 

36. 558 
109. 777 
36. 592 
18. '275 
36. 550 

36. 587 

36. 675 
36. 555 

36.6195 


The  fundamental  difficulty  is  that  the  weights  do  not  agree  among 
themselves,  so  that  it  is  impossil)le  to  know  which  is  the  correct  weight. 


236 


GOLD    STAKDARD    IN    INTERNATIONAL    TRADE. 


Oil  the  whole,  I  would  not  hesitate  to  take  565.10  grains  and  36.56 
grams  as  the  weight  of  a  Shanghai  tael. 


HAIKWAN  TAEL. 


Weight  in  grains. 

(1)  1  tael  weighed 582.031 

2  taels  weighed 1, 163. 861 

ltael=      581.930 

3  taels  weighed 1,743.741 

ltael=  581.247 

9mace and  1  mace  ( =1  tael)weighed  584. 309 

7  mace  and  3  mace  (  =  ltae!Uveighed  582.864 

6niaceand4mace  (=ltael)weighed  580.938 
5   mace,    4    mace,    and    1    mace 

(=ltael)  weighed...  584.463 

Average 582. 2207 


(2)  According  to  the    Hongkong   and 

Shanghai  Banking  Corporation, 
102.90  Shanghai  taels=100  Haik- 
wan  taels,  and  1  Shanghai  tael 
=565.973  grains;  thus,  1  Haikwan 
tael 582.3862 

(3)  Mr.  Veitch,  of  the  Hongkong  and 

Shanghai    Banking  Corporation, 

gives 581. 630 

(4)  By  my  first  weighing  trial,  28th  Au- 

gust, 1880 581. 938 

(5)  If  102.90  Shanghai  taels=100  Haik- 

wan taels,  and  1  Shanghai  tael,  as 
found  by  the  new  weighing  trial, 
=565.117  grains,  then  1  Haikwan 
tael  is 581. 5053 


Weight  in  grams  (0.0648=1  grain). 

(1)  1  tael  weighed 37.677 

2  taels  weighed 75. 350 

ltael=  37.675 

3  taels  weighed 112. 894 

1  tael=  37.631 

9 mace  and  1  mace  (=1  tael) weighed  37.845 

7  mace  and  3  mace  ( =  1  tael )  weighed  37. 740 

6  mace  and  4  mace  ( =1  tael)  weighed  37. 602 
5    mace,    4    mace,    and    1    mace 

( =1  tael)  weighed 37. 847 

Average 37. 6955 

No  information  obtainable  as  to  the 
weight  in  grams. 

(2)  Bv    cii'culation,  582.3862   grains 

xOi^ilS  gram 37.7386 


(3)  By  calculation, 581.630  grainsxO.0048 

gram 37.6896 

(4)  By  my  first  weighing  trial,  28th  Au- 

gust, 1880 37.686 

(5)  Bv  calculation,    581. .5053   grains 

■x0.0648  gram 37.6815 


The  weights  (a  new  set)  for  the  new. weighing  trial  were  obtained 
from  the  Haikwan  Bank,  after  some  delay  for  the  purpose  of  having 
them  assayed.  The  above  figures,  however,  show  how  imperfectly  the 
task  was  performed.  I  am  under  the  impression  that  the  bank  forgot 
to  have  the  weights  assayed,  and  when  I  called  for  them  was  ashamed 
to  say  so,  I  would  be  inclined  to  take  581.938  grains  and  37.686 
grams  as  the  most  approximate.  This  weight  is  thirty  one-hundredths 
grain  above  Mr.  Veitch's  statement,  thirty  one-hundredths  grain  below 
the  found  average,  and  equal  to  the  2  taels  weight. 

K'U-P'ING  TAEL. 


Weight  in  grains. 

(1)  1  tael  weighed 575.463 

2  taels  weighed 1,151.846 

ltael=  575.923 

3  taels  weighed 1, 726. 962 

1  tael=  575.654 
8    mace    and    2  mace   (=1   tael) 

weighed 575. 494 

7    mace    and    3   mace   (   -1    tael) 

weighed 576. 571 

5   mace,    3    mace,   and    2    mace 

( =1  tael)  weighed 576. 309 

Average 575. 849 


(2)  According  to  the  HongkoTig  and 

Shanghai  Hanking  Corporation, 
101.80  Shanghai  taels  =  100 
K'u-p'ing  taels,  and  1  Shanghai 
tael=565.973    grains;    thus,    1 

K'u-p'ing  tael .570. 1605 

(2a)  At  .56.5.117  grains  for  tlie  Shanghai 

tael,  1  K'u-ii'ing  tuel  would  tic      57.5. '289 

(3)  Bv   my   first  weighing   trial,   28th 

August,  1880 576. 339 

(4)  Dr.    S.    Wells    Williams,     in      his 

<;hinese  Commercial  Guide,  page 

275,  gives 579 


Weight  in  grams  (0.0648=1  grain). 

(1)  1  tael  weighed 37.254 

2  taels  weighed 74. 550 

1  tael=  37. '275 

3  taels  weighed 111.  970 

1  tael=         37.323 
8  mace   and   2   mace    (  =  1    tael) 

weighed 37. 257 

7  mace   and    3   mace    (=1    tael) 

weighed 27.330 

5  mace,  3  mace,  and  2  mace  (=1 

tael)  weighed 37. 314 

Average 37. 297 

No  information  obtainable  as  to  the 
weight  in  grama. 

(2)  By  calculation,  576.1605  grains  x 

0.0648  gram 37. 3352 


(2a)  Bv  calculation,  575.289  grains  x 

0.0648  gram 37. 2787 

(3)  Bv  calculation  of  mv  first  weigh- 

"ing  trial,  576.339  grains  x  0.0648 

gram 37. 346 

(4)  By  my   first  weighing  trial,  28th  \       37.320 

August,  1880 J         37.  •2,58 


GOLD    STANDARD    IN    INTERNATIONAL    TRADPL  237 

The  weiofhts  used  in  the  above  trial  were  procured  from  the  llaik- 
wan  Bank,  after  waiting-  for  some  time  to  have  them  assayed;  but 
here  also  they  were  found  to  differ  anions-  themselves.  1  would  be 
inclined  to  take  the  result  of  the  weij>hin<>s  of  the  2  taels  and  3  taels — 
575.923  and  575. (i5J:  grains,  giving-  an  average  of  575.788  grains, 
37.275  and  37.323  grams,  giving  an  average  of  37.299  grams — as  the 
weight  most  likel}'  to  be  correct. 

TOUCH  OR  FINENESS. 

There  is  no  standard  as  to  touch  or  fineness  for  the  different  taels. 

g.  h.  noetzli. 
Statistical  Department, 

Shamjltai^  30th  Septemhei\  1880. 


Memoranckim. 

1.  The  SJumghai  marhet  {or  Kuei-p''ing)  tael  (not  a  weight). — Fine- 
ness —2  or  2  per  cent  discount. 

The  Shanghai  or  Kuei-p^ing  tael  used  in  the  record  of  values  has  no 
corresponding-  weight.  There  are  copper  or  brass  weights  for  Haik- 
wan  or  Ssu-p'ing  taels,  for  K'u-p'iug  taels,  and  for  Ts'ao-p'ing  taels; 
l)ut  I  am  told  that  there  are  no  copper  or  brass  weights  called  Kuei- 
p'ing  weights.  Shanghai  sycee  is  known  as  tou-kuei  yin,  also  as  chiu- 
pa  yin. 

2,  The  Kuei-p'ing  tael  is  not  a  weight,  but  is  the  result  of  a  calcu- 
lation, the  elements  in  which  are  the  actual  weight  of  the  silver  in 
Ts'ao-p'ing  taels.  The  addition  to  this  of  whatever  percentage  is 
indorsed  by  the  Kung-ku  on  each  shoe  for  its  qualitj^  or  betterness. 
The  conversion  of  the  total  of  the  two  sums  into  the  so-called  Kuei- 
p'ing  taels  at  the  rate  Ts'ao-p'ing  taels  98  =  Kuei-p'ing  taels  100. 

For  example,  a  shoe  of  sycee  that  has  to  be  valued  is  taken  to  the 
Kung-ku  office;  there  the  weight,  say,  50  Ts'ao-p'ing  taels,  is  written 
on  the  shoe;  also  the  premium  for  quality,  say,  Ts'ao-p'ing  taels  2.70. 
The  owner  can  then  say  that  he  has  50  Ts'ao-p'ing  taels  of  sycee  of 
2.70  premium.  Should  he  wish,  however,  to  express  the  value  of  his 
sj^cee  in  the  so-called  Kuei-p'ing  tael,  the  total  of  the  two  figures  must 
be  divided  by  0.98  (yVo)  or  multiplied  by  VV,  e.  g.,  1  shoe  50  Ts'ao- 
p'ing  taels  weight  +  premium  Ts'ao-p'ing  taels  2.70  =  Ts'ao-p'ing 
taels  52.70  -^  0.98  =  Kuei-p'ing  taels  53.77. 

Ts'ao-p'ing  taels. 

Weight 50.  00 

Premium 2.  70 


.98)  52.70  (53.77 
490 

370 
294 

760 
686 

740 
686 


238 


GOLD    STANUAKD    IN    INTP^KNATIONAL    TRADE. 


The  following  is  a  copy  of  the  tally  of  box  No.  1  of  the  remittance 
of  S3"cee  from  Chefoo  ex  Fungshun  on  26th  Jul}'  last,  the  valuation 
being-  made  at  the  Haikwan  Bank  on  the  27th  July  b}'^  deputies  from 
the  Kune-ku  office: 


Shoes. 

Actual 

Premium  for  quality  of  sycee 

Shoes. 

Actual 

Premium  for  quality  of  sycee 

weight. 

per  shoe. 

weight. 

per  shoe. 

Ts'ao-p'ing 

Ts'ao-p'ing 

taels. 

Ts'ao-p'inri  tads. 

taels. 

Ts'ao-p'ing  taels. 

1 

51.37 

2.80 

22.... 

50.10 

2.70^ 

2 

50.97 

3  at  2.80=Tl.s.    8.40 

23.... 

.50. 97 

3 

50. 82 

24.... 

50.60 

4 

50.03 

2.75 

25.... 

50.60 

5 

50.02 

" 

26.... 

50.18 

6 

50.92 

27.... 

61.15 

7 

50.72 

28.... 

50.80 

8 

50. 72 

29.... 

50.19 

9 

50.84 

30.... 

50.24 

.17  at  2.70=Tls.  46.90 

10 

50.50 

31.... 

50.20 

11 

49.95 

32.... 

50.84 

12 

50.21 

,18  at  2.75=Tls.  49.50 

33.... 

49.94 

13 

50.36 

34.... 

50.28 

14 

49.90 

35.... 

49.87 

15 

50.94 

36.... 

51.25 

16 

49.87 

37.... 

50.18 

17 

50.81 

38.... 

50.95 

18 

19 

51. 30 
50.02 

39.... 
40.... 

50.14 
50.30 

^;P}  2  at  2.65=Tls.    5.30 

20 

50.36 

Total 

aremium  109.10  taels. 

21 

50.02 

"  , 

2, 019. 38  total  weight. 

109. 10 

premium  in  Ts'ao-p'ing  taels. 

(2,171.918 

.  98)  2, 128.  48 

196 

168 

98 

704 

686 

188 

98 

900 

882 

180 

98 

820 

784 

36 

The  object  of  the  two  foregoing  operations  is,  first,  to  reduce  sycee 
of  a  given  premium  to  its  equivalent  in  terms  of  a  sycee  without  pre- 
mium, and,  second,  to  reduce  that  figure  to  its  equivalent  in  terms  of 
a  sycee  that  is  either  2  per  cent  inferior  to  sycee  that  bears  no  pre- 
mium or  that  is  subject  to  a  discount  in  weighing. 

I  have  been  told  that  1)8  Ts'ao-p'ing  taels  are  taken  to  equal  100  taels 
kuei  yin  as  a  mere  discount  on  weight.  I  have  also  been  told  that  the 
relation  of  98  to  100  is  set  down  to  the  inferiority  of  the  original  kuei 
yin  sycee  as  compared  with  the  present  standard  of  the  Kung-ku  ofHce. 
In  P^dkins's  Progressive  Lessons  in  Chinese,  page  29,  the  following 
definition  is  given:  "Kiu-pahyin,  Shanghai  sycee,  literally,  sj'^cee  at 
2  per  cent  discount.*" 

On  inquiry  at  the  Kung-ku  office'^  I  obtained  a  memorandum  in 

«I  have  not  been  able  to  find  any  confirmation  of  the  statement  that  Shanghai 
sycee  is  sycee  of  the  dollar  purity;  my  authority  from  the  Kung-ku  office  says  that 
it  differs  somewhat  in  fineness  from  the  dollar. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 


2'6\) 


answer  to  certain  questions  to  the  effect  that  the  weight  adopted  by  the 
Kung-ku  is  tlie  Ts'ao-p'i no- weight  used,  before  the  opening  of  Shang- 
hai to  foreign  trade,  by  tiie  merchants  in  the  pulse  and  grain  trade;  that 
the  sycee  used  by  the  tracU^  was  caUed  yiiau-ssu  yin,  and  was  cast  in 
small  round  cakes  of  about  a  taefs  weight  each,  which  were  current 
nuich  as  dollais  now  are;  that  it  was  also  called  tou-kuei  yin,  because 
it  was  the  regulation  sycee  of  the  pulse  and  grain  trade;  and  that  com- 
pared with  the  present  standard  of  the  Kung-ku,  kuei  yin  s3'cee  would 
have  its  quality  expressed  by  the  term  chii  hsui  erh  shi — that  is,  each 
100  taels  weight  of  such  sycee  would  hav^e  a  discount  of  2  taels  and  be 
taken  only  as  1*8  taels. 

On  the  Kung-ku  scale  of  touches,  then,  this  yiian-ssu  3^in  would 
have  its  standard  expressed  by  minus  two  (—2),  e.  g. : 


W 


a 


Percentages.. (+6. 168),  -f-6  (+5.6)  +5,  +4,  +3,  +2,  +1,  0,  -1,  -2,  -3,  -4 


Degrees  of  betterness. 


Degrees  of  worseness. 


The  scale  proceeds  by  .5  candarins  per  50  taels  or  1  mace  per  100  taels, 
but  for  sake  of  brevity  the  whole  numbers  only  are  given  in  the  illus- 
tration. 

The  yiian-ssii  or  kuei  3'in  is  no  longer  met  with,  the  current  sycee 
varying  from  4  to  6  degrees  of  betterness,  but  the  denomination  of 
value  is  kept  up,  and  all  values  are  expressed  in  their  equivalents  in 
the  imaginar}^  kuei  yin. 

The  term  Kuei-ping  seems  somewhat  misleading  (there  being  no 
weight  of  that  name),  so,  instead  of  writing  100  taels  Kuei-p'ing,  we 
might  preferabl}^  write  100  taels  of  kuei  yin. 

The  following  calculation  is  submitted  for  finding  the  rate  of  ex- 
change between,  sa}^,  Ts'ao-p'ing  sycee  and  kuei  3an: 


.0 


CD    C* 
(V 


oj  a    I. 

(DO,). 
>-    f-  1    /. 


Percentages. 
(106.168)  Haikwan. 

106. 
(105.6)  K'u-p'ing. 

105  Ts'ao-p'ing. 

104 

103 

102 

101 

100 
99 

98  Knei  yin. 
97 


To  find  the  relation  which  sycee  of  the 
d  quality  bears  to  the  sycee  of  the  j 
quality: 

ioo;=98a- 

105.»;=100(/ 
f?=Ans.  1.071428/ 
100/Xl05.rXt/_105i 
98.rXl00(Z         98 
Or  V)v  analysis: 

100f/=105x- 
98./:=  100; 

._iooi  ■ 


100d=105Xl00j 
98 

98 


240       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

98 
One  of  the  premises  of  the  calculation  is  that  j=zr^^x'.  this  is  merely 

a  comparison  of  percentages.     It  follows  that  100  taels  of  the  j*  quality 
equal  98  taels  of  the  x  quality,  and  that  '''—-jnrj\  and  1  tael  of  the  x 

quality  equals  — --  taels  of  the  j  qualit}^ : 

98 

._98 


100y=98a; 
98 


lo^y-... 


In  the  foregoing  calculations  S3'cee  of  diiferent  grades  has  had  its 
value  expressed  in  terms  of  sycee  of  the  x  quality  by  adding  the  per- 
centage of  premium   to  the  weight;  by  the  above  formula  x  equals 

— j,  so  whatever  coefficient  there  ma}^  be  of  «,  whether  it  be  52.70, 
as  in  the  first  example,  or  2,128.48,  as  in  the  second  example,  may  be 

multiplied  by  ~^^j  in  lieu  of  x^  the  answer  being  the  equivalent  in  kuei 

98 

yin  sycee.  In  the  calculations,  in  place  of  multiplying  by  100  and 
dividing  by  98  a  step  is  saved  by  dividing  by  the  decimal  0.98. 

The  Chinese  method  of  making  the  calculation  on  the  suan-pan  to 
find  the  equivalent  in  kuei  yin  of  100  Ts'ao-p'ing  taels  weight  of  sycee 
at  5  per  cent  premium  is — 

Ts'ao-p'ing  taels. 

To 100.00 

Add  for  premium 5.  00 

For  100  taels  add  2  per  cent 2.  00  called  shen  shang  shen  chia  erh. 

For  7  taels  add  2  per  cent 0. 14 

For  0. 14  taels  add  2  per  cent 0.  0028 

For  0.0028  taels  add  2  per  cent 0.  000056 

Ts'ao-p'ing  taels  107. 142856  + 

The  process  may  be  carried  on  until  the  repeating  decimal  0.142857  is 
obtained  in  the  answer.  The  direct  division  of  105  by  98  gives  the 
same  answer:  107.142857,  142857,  etc. 

3.  Fineness. — I  was  told  at  the  Oriental  Bank  that  through  remit- 
tances to  India  the  average  fineness  of  Shanghai  sycee,  as  assa^^ed  by 
the  mints  in  India,  was  found  to  be  982,  and  at  the  Comptoir  d'Escompte 
that  it  was  980  or  982.  The  comprador  of  the  Oriental  Bank. Corpora- 
tion stated  that  the  Chinese  term  2.70  premium  (per  50  taels)  corre- 
sponded to  986,"  but  it  is  hardly  worth  while  to  make  a  calculation  on 
the  basis  of  a  single  statement.  Were,  however,  a  certified  statement 
obtainable  of  the  out-turn  as  to  fineness  of  a  shipment  of  sycee  in 
which  each  shoe  had  been  marked  by  the  Kung-ku  as  of  a  given  pre- 

«My  authority  from  the  Kung-ku  office  considers  that — 
2.70  corresponds  to  988        2.95  corresponds  to  993        3.15  corresponds  to  997 
2.75  989        3.00  994        3.20  998 

2.80  990        3.05  995        3.25  999 

2.85  991        3.10  996        3.30  1000 

2.90  992 

taking  as  his  basis  that  foreign  bar  silver  is  stamped  as  998;  but  never  naving  had. 

occasion  to  make  the  calculation,  gives  these  figures  as  approximate  only. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       241 

uiiiiin — say,  2.70 — then  a  basis  would  be  obtained  from  which  the 
foreign  expressions  corresponding  to  the  terms  for  l)etterness  of  sycee, 
such  as  2.G,  2.65,  2.7,  2.75,  etc.,  could  be  calculated  and  given  in 
thousandths  i\fM). 

The  out-turn  of  several  remittances  to  India  can  l)e  referred  to,  but 
the  records  do  not  state  that  the  sycee  experimented  on  was  of  a  uni- 
form touch.  In  the  foregoing  tally  of  40  shoes  it  is  seen  that  the 
shoes  of  sycee  in  one  box  wxre  of  four  different  grades  of  fineness. 
A  "lot'"'  of  sycee  may  contain  shoes  from  different  provinces  and 
varying  in  betterness  from  2  taels  or  less  up  to  3  taels  premium  (per 
50  taels  weight,  or  double  these  figures  per  100  taels  weight). 

1  am  further  told  that  the  smelting  establishments  which  convert 
bar  silver  or  dollars  into  sycee,  and  which  recast  certain  sycee  for  the 
percentage  of  gold  contained  in  it,  have  no  fixed  standard  of  fineness; 
the  shoes  turned  out  will  enter  into  the  currency  of  the  place  whether 
they  be  of  2.6,  2.65,  2.7,  or  2.75  touch. 

It  appears,  then,  that  in  the  absence  of  further  information  as  to  the 
Chinese  standard  of  the  sycee  sent  to  India  no  conclusion  can  be  come 
to  as  to  the  proper  foreign  equivalents  for  the  terms  in  the  Chinese 
scale  of  touches. 

The  required  touch  or  premium  for  K'u-p'ing  taels  is  taken  as  2.8 
per  50  taels,  or  5.6  taels  per  100  taels  weight;  it  would  appear,  then, 
that  the  fineness  of  K'u-p'ing  S3^cee  could  be  ascertained  approximately 
by  having  a  number  of  shoes,  certified  to  b}^  the  Kung-ku  as  being  of 
this  exact  quality,  submitted  to  a  foreign  mint  for  assay.  From  the 
result  the  entire  Chinese  scale  of  touches  could  be  calculated,  or  the 
same  experiment  might  be  made  with  sycee  picked  at  the  Ts'ao-p'ing 
or  at  the  Haikwan  standard;  in  any  case  a  basis  would  be  obtained  for 
calculating  the  requirements  for  a  coin  equivalent  to  the  Haikwan, 
K'u-p'ing,  Ts'ao-p'ing,  or  Shanghai  tael.  It  would,  however,  still  be 
a  question  whether  the  Kung-ku  offices  at  different  places  have  a  com- 
mon standard  of  valuation,'^'  and  whether  a  valuation  made  b}'^  an  unof- 
ficial Kung-ku  office  would  be  accepted  at  a  provincial  treasury. 

4.  Haikiuan  taels. — 

Weiglit  each 581.47  grains. 

Fineness 6  Haikwan  taels  premium  per  100. 

Distinction  has  to  be  made  between  a  taeFs  weight  and  a  tael's  value. 

As  to  weight:  I  procured  from  the  Haikwan  Bank  manager  a  set  of 
weights  called  kuan  or  Ssii-p'ing  fa-ma,  made  of  brass,  with  the 
exception  of  the  weights  for  candarins,  which  are  of  ivory  in  small 
strips.     The  50-tael  w^eight  has  cast  on  it  the  characters  (Chinese). 

These  weights  I  have  compared  with  a  set  of  troy  weights  belonging 
to  the  Com[)t()ir  d'Kscompte,  obtaining  results  varying  from  581.71 
grains  to  581.60  grains  per  tael;  but  as  in  weighing  the  subdivisions 
or  lesser  Haikwan  weights  had  to  be  used,  which  were  found  not  to 
agree  closely  with  the  50-tael  weight,  it  may  be  better  to  arrive  at  the 

«I  have  been  informed  since  writing  the  above  that  sycee,  considered  at  Shanghai 
to  V)ear  a  premium  of  3.2  taels  ])er  100,  at  Chefoo  would  only  be  (considered  as  of  the 
unity  standard — that  is,  as  having  no  premium  and  no  discount. 

Shanghai  premium,  .3.2  taels  said  to  equal  unity  standard  at  Chefoo.- 
Shanghai  premium,  4.8  taels  said  to  e(]ual  unity  standard  at  Hankow. 
Shanghai  premium,  2.7  taels  said  to  equal  unity  standard  at  Soochow. 

S.  Doc.  128,  58-3 16 


242  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

weight  of  the  Haikwan  tael  by  multiplying  the  weight  obtained  for 
the  Ts'ao-p'ing  tael,  viz,  565.637  grains,  by  the  accepted  proportion, 
100  Haikwan  taels  weigh  102.80  Ts'ao-p'ing  taels. 

565.637X102.80=58L47  grains,  weight  of  1  Haikwan  tael. 
1  Haikwan  tael  weighs  (or  should  weigh)  581.47  grains. 

At  the  Kung-ku  office  the  Haikwan  50-tael  weight  was  considered 
to  be  the  most  relialile  of  the  set.  Furthermore,  its  ascertained 
weight  in  Ts'ao-p'ing  taels  agrees  with  the  figure  used  by  the  Haik- 
wan Bank  in  its  calculation  on  page  23. 

B}'  using  a  set  of  gram  weights  belonging  to  the  Comptoir  I  found 
1  Haikwan  tael  to  weigh  37.68  grams,  and  on  another  trial  to  weigh 
37.66  grams.  The  first  result  is  verified  as  follows:  Multiply  the 
weight  taken  for  the  Ts'afo-p'ing  tael,  36.6527  grams,  by  the  propor- 
tion 100  Haikwan  taels  weigh  101.80  Ts'ao-p'ing  taels. 

36.6527X102.80=37.6789  grams,  weight  of  1  Haikwan  tael. 
1  Haikwan  tael  weighs  (or  should  weigh)  37.68  grams. 

If  the  figures  37.6780  ))e  multiplied  by  15.432319  (the  number  of 
grains  equivalent  to  a  gram)  the  result  is  581.47  grains — the  weight 
submitted  above  for  the  Haikwan  tael. 

In  the  Reports  on  the  Haikwan  Banking  S3^stem,  page  100,  it  is 
stated  that  tael  \yeights  from  the  f  Wuhu]  Haikwan  Bank  were  weighed 
by  Mr.  Taintor,  the  Haikwan  tael  being  found  to  weigh  582.94  grains 
troy,  and  the  Wuhu  tael,  565.7035  grains.  On  page  97,  Mr.  Kopsch 
gives  the  weight  of  1  Haikwan  tael  as  38.08  grams  nearly;  multiplj'ing 
this  figure  by  15.432349,  the  equivalent  587.66  grains  is  obtained. 
According  to  Mr.  Taintor,  1  Haikwan  tael  weighed  582.94  grains; 
according  to  Mr.  Kopsch,  1  Haikwan  tael  weighed  587.66  grains.  As 
given  above,  1  Haikwan  tael  weighs  581.47  grains.  The  50-tael 
weight  mentioned  al)Ove  was  found  at  the  Kung-ku  office  to  Aveigh 
51.40  Ts'ao-p'ing  taels  and  indorsed  to  that  efiect;  hence,  100  Haikwan 
taels  weigh  102.80  Ts'ao-p'ing  taels. 

The  Haikwan  tael  as  a  denomination  of  value:  In  practice  in  Shang- 
hai the  Haikwan  tael  is  not  a  denomination  of  weight,  but  of  value;  it 
ma}"  theoretically  be  a  tael's  weight  of  sycee  of  6  taels  touch  or  pre- 
mium per  100;  but  as  such  sycee  is  not  generally  current  at  Shanghai 
the  equivalent  in  Shanghai  taels  is  accepted  in  the  collection  of  duties, 
the  calculation  being^ — 

As  the  Haikwan  tael  weight  of  brass  bears  to  the  Ts'ao-p'ing  tael  weight  the  propor- 
tion 100:102.80:  "  Shanghai 

•  Ts'ao-p'ing  taels. 

To 100.000 

Add  for  difference  in  weight 2.  800 

Add  for  touch  or  premium,  6X  102.8  Haikwan  taels 6. 168 

Meltage  fee,  etc; 204 

Ts'ao-p'ing  taels 109. 172 

(That  is,  109.172  Ts'ao-p'ing  taels  (without  premium),  less  meltage  fee, 
ecpials  100  Haikwan  taels  of  the  standard  6  taels  premium.) 


VxOLD    STANDARD    IN    INTERNATIONAL    TRADE.  243 

Ninety-eioht  Ts'ao-p'ing  tacls  being  taken  to  equal  100  Shanghai 
tael^i.  we  ha\(^  the  proportion — 

Ts'ao-p'injj;  Tls.  98  :  Shanghai  Tls.  100  ::  Ts'ao-p'ing  Tls.  109.172  :  111.1 
98)  109.172  (111.4 
98 

111 


137 

98 

392 
392 

Haikwan  taels,  100=Shanghai  tael?,  111.4. 

To  pay  100  Haikwan  taels  one  must  hand  the  bank  sycee  or  dollars  or 
cash  at  the  market  rate,  or  the  tael  notes  issued  by  the  foreign  banks,  to 
the  value  of  111.4  Shanghai  taels.  The  calculation,  however,  includes 
a  meltage  fee,  and  the  item  of  premium,  6  taels,  is  in  excess  of  what 
is  generally  required.  '2.8  taels  per  weight  of  50  taels,  or  5.6  taels  per 
weight  of  100  taels,  being  said  to  be  the  standard  for  K'u-p'ing,  or 
provincial  treasurer's,  sycee. ^'  Wh}'  the  meltage  fee  should  be  charged 
when  the  bank  is  not  forced  to  take  a  given  weight  of  dollars  is  not 
apparent.  Were  the  meltage,  etc.,  fee  dropped  out  and  the  standard 
for  K'u-p'ing  sycee  taken,  the  calculation  would  be— 

100  +  2.80  +  5.60  =  108.40-H.98  =  110.61  Shanghai  taels. 

The  calculation  given  above  is  that  communicated  by  the  Haikwan 
I^mk  manager  and  printed  in  the  Shanghai  Report  on  the  Haikwan 
Banking  System,  page  111. 

5.   K'u-p''ing  taels — 

Weight,  each 575.82  grain?. 

Fineness 5.60  taels  per  100. 

Distinction  has  to  be  made  between  a  tael's  weight  and  a  tael's  value. 

As  to  weight:  I  procured  from  the  Haikwan  Bank  a  set  of  brass 
weights  with  the  characters  K'u-p'ing  cut  on  them,  Avhich  were  com- 
pared for  me  at  the  Kung-ku  office  with  the  sets  of  troy  and  gram 
weights  from  the  C'onqjtoir  as  well  as  with  the  Kung-ku  Ts'ao-p'ing 
weights.  It  was  found  that  the  50-tael  K'u-p'ing  weight  weighed  50.90 
Ts'ao-p'ing  taels,  and  it  was  indorsed  accordingly;  hence — 

100  K'u-p'ing  taels  weigh  101.80  Ts'ao-p'ing  taels; 

also  that  1  K'u-p'ing  tael  weighed  575.812  grains. 

For  the  sake  of  uniformity  we  may  multiply  the  weight  obtained  for 
the  Ts'ao-p'ing  tael,  viz,  565.637  grains,  !)y  101.80,  the  proportion 
given  above,  and  take  the  result,  575.818  grains,  as  the  weight  of  the 
K'u-p'ing  taol. 

1  K'u-p'ing  tael  weighs  (or  should  weigh)  575.82  grains. 

In  grams  the  K'u-p'ing  tael  was  found  to  weigh  37.30.  If,  however, 
the  weight  of  the  Ts'ao-p'ing  tael  in  grams,  36.6527,  be  multiplied  by 
101.80,  the  Hxed  proportion,  the  result  obtained  is  37.312  grams;  the 

«2.8  or  5.6  is  the  touch  used  in  calculating  the  official  rate  of  exchange  between 
K'u-p'ing  and  Shanghai  taels;  2.8  is,  however,  considerably  below  the  pure  silver 
which  the  Chinese  niav  lav  claim  to  collect. 


244  GOLD    STANDARD    IN    1NTP:KNAT1(>NAL    TRADE. 

.same  figure  is  obtained  by  dividing-  575.818  by  15.43234U,  to  reduce 
grains  to  grams. 

1  K'u-p'ing  tael  weighs  (or  should  weigh)  ;}7.312  grams. 

As  regards  value  and  fineness:  The  standard  for  K'u-p'ing  sycee  is 
said  to  be  2.80  taels  premium  per  shoe  of  50  taels  weight,  or  5.60  taels 
per  100  taels  weight. 

The  rate  for  converting  K'u-p'ing  into  Shanghai  taels  is  100  K'u- 
p'ing  taels  =  109.6  Shanghai  (kueiyin)  taels,  and  is  arrived  at  as  shown 
in  the  following  calculation: 

As  the  K'u-p'ing  tael  weight  of  brass  bears  to  the  Ts'ao-p'ing  tael 
weight  the  proportion  100  :  101.80,  so — 

•Shanghai 
Ts'ao-p'ing  taels. 

To - 100.00 

Add  for  difference  in  weight 1 .  80 

Add  for  touch  or  premium 5. 60 

Ts'ao-p'ing  taels 107.  40 

(That  is,  107.40  Ts'ao-p'ing  taels  (without  premium)  equal  100 
K'u-p'ing  taels  of  the  standard  5.60  taels  premium.) 

Ninety-eight  Ts'ao-p'ing  taels  being  taken  to  equal  100  Shanghai 
taels,  we  have  the  proportion — 

Ts'ao-p'ing  Tls.  98  :  Shanghai  Tls.  100  ::  Ts'ao-p'ing  Tls.  107.40  :  109.6. 
98)  107.40  (109.592 
98 

940 

882 

580   - 
490 

900 

882 

180 
100  K'n-i>'ing  taels=kuei  yin  or  109.60  Shanghai  taels. 

The  above  calculation  differs  from  that  for  the  conversion  of  Haik- 
wan  into  Shanghai  taels  in  that  the  premium  is  considered  as  expressed 
in  Ts'ao-p'ing  taels,  a.nd  that  no  meltage  fee  enters  into  the  calculation. 

I  have  been  told  in  the  Haikwan  Bank  that  a  remittance  would  not 
necessarilv  be  of  s^'cee  picked  for  the  2.80  touch.  To  I'emit  2,000 
K'u-pMng  taels,  the  sycee  would  be  put  up  in  packets  of  100  K'u-p'ing 
taels  weight  each,  the  cover  of  the  packet  would  be  marked  with  the 
touch  of  the  sycee,  say  2.75  taels  per  50  taels,  or  5.50  taels  per  packet; 
the  difference  ])etween  6.50  taels  and  the  standard  5.60  taels,  viz,  1 
ma(;e  for  each  ])acket,  would  have  to  be  made  good,  and  to  make  up 
the  2,000  K'u-p'ing  taels  an  additional  2  K'u-p'ing  taels  weight  of 
broken  S3'cee  would  have  to  be  put  in  the  box. 

On  the  21st  or  22d  ultimo  1  took  advantage  of  the  Kung-ku  apprais- 
ers being  at  the  Ilaikwan  Bank  to  have  compared  a  bank  weight, 
marked  with  Chinese  characteivs  expressing  the  fact  that  it  is  the 
standard  treasury  weight  of  that  locality,  with  the  weights  brougiit 
from  the  Kung-ku  otlice,  with  the  result  that  it  weighed  101.80  Ts'ao- 
p'ing  taels. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       245 

6.   T8''ao-pHng  taels — 

Weight  each 565.637  grains. 

^.  (  5.50  taels  iht  100  Kmig-kn  standard. 

^  "^^"^'^^ \  5.00  taels  per  100  official. 

As  to  weight:  The  Ts'ao-p'ing  tael  weight"  of  brass  i.s  the  basis  of 
all  moiietaiy  calculations  when  the  value  of  sycee  is  in  question,  it 
being  used  for  weighing  the  sj'cee. 

I  have  compared  the  troy  weights  of  the  Couiptoir  with  the  Ts'ao- 
p'ing  weights  at  the  Coniptoir,  the  Haikwau  Bank,  and  the  Kung-ku 
office,  with  results  varying  from  565,72  grains  to  565.56  grains  as  the 
weight  of  1  Ts'ao-p'ing  tael;  but  as  the  weights  of  the  Kung-ku  office 
are  accepted  as  the  local  standard,  and  their  balances  considered  to  be 
accurate,  I  prefer  taking  the  weight  ascertained  there  to  an  average  of 
several  weighings  at  different  places.  By  the  Kung-ku  weights  a  brass 
weight  of  100  ounces  troy  weighed  84.86  Ts'ao-p'ing  taels. 

100  ounces=48,000  grains-^84.86=565.6375. 
1  Ts'ao-p'ing  tael  weighs  565.6375  grains. 

In  this  experiment  the  balance  between  the  100-ounce  weight  and 
the  84. S6  taels  was  considered  exact.  The  Chinese  in  weighing  do  not 
use  any  fractional  part  of  a  candarin,  but  were  a  half  candarin  (5  li) 
added  to  or  subtracted  from  84.86  taels  the  difference  in  the  result 
would  only  be  0.033  of  a  grain. 

At  the  Kung-ku  office  I  found  95()  grams  to  balance  25.93  Ts'ao- 
p'ing  taels;  the  result  worked  out  is  1  Ts'ao-p'ing  tael  weighs  36.64 
grams.  Burt  as  in  this  case  the  weight  in  taels  is  small  and  the  pos- 
sible discrepancy  of  a  half  candarin  in  weighing  would  have  a  greater 
effect  on  the  answer  than  in  the  foregoing  calculation,  I  prefer  to  take 
the  Ts'ao-p'ing  tael  as  equal  to  565.6375  grains,  and  to  ascertain  the 
equivalent  in  grams  by  dividing  that  figure  by  15.432349,  the  number 
of  grains  equal  to  1  gram. 

565.6375-^-15.432349=36.6527. 
1  Ts'ao-p'ing  tael  weighs  (or  should  weigh)  36.6527  grams. 

Also  by  the  Kung-ku  weights — 

102.80  Ts'ao-p'ing  taels  weight=100  Haikwan  taels  weight. 
101.80  Ts'ao-p'ing  taels  weight =100  K'u-p'ing  taels  weight. 

In  1864  the  manager  of  the  Comptoir  d'Escompte  at  Shanghai  gave 
the  weight  of  the  Shanghai  tael  as  "  troy  grains  565. TO,  perhaps  only 
565.43;"  the  present  manager  of  that  bank  gives  the  weight  as  565.63 
grains. 

As  regards  value  and  fineness:  The  standard  for  Ts'ao-p'ing  sycee  is 
said  to  be  2.75  per  50  taels  weight,  or  5.50  taels  premium  per  100  taels 
weight;  that  is,  for  tsu-se  Ts'ao-p'ing  sycee.  In  written  bank  orders, 
to  prevent  dis})ute,  the  standard  of  the  sycee  must  be  specitied. 

The  writer  Sun  tells  me  that  when  salaries  were  paid  in  Ts'ao-p'ing 
taels  the  equivalent  realized  for  100  taels  was  107.143  Shanghai  taels, 
the  calculation  being — 

Ts'ao-p'ing  taels. 

To 100.  00 

Add  for  premium 5.  00 

Ts'ao-p'ing  taels 105.00 

«  Not  uniform  at  different  places. 


246  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

(That  is,  105  taels  Ts'ao-p'ing  (without  premium)  equal  100  Ts'ao- 
p'ing-  taels  with  5  taels  premium  as  the  standard.) 

98  Ts'ao-p'ing  taels  being  taken  to  equal  100  Shanghai  taels — 

Ts'ao-p'ing  Tls.  98  :  Shanghai  TIs.  100  :  :  Ts'ao-p'ing  Tls.  105  :  107.1428. 
98  )  105  (  107.1428 
98 


700 

686 

140 
98 

420 
392 

280 
196 

840 

784  , 

56 
100  Ts'ao-p'ing  taels  weight  of  sycee  at  2.5  premium =107. 143  taels  Shanghai. 

I  am  far  from  submitting  these  notes  as  authoritative;  but  ofler 
them  mainly  with  a  view  to  indicating  the  field  for  inquiry  in  this 
connexion. 

Pascal  Martin. 

Shanghai,  Wtli  October,  1880. 


COPY  OF  A  LIST  PREPARED  BY  THE  WRITER  SITN. 

Haikwan  Tls.  100=Shanghai  Tls.  111.4.0.0 

=  K'u-p'ing  Tls.  101.6.4.2  (from  multiplying  91.24  by  111.4) 

=Ts'ao-p'ingTls.  103.9.7.3  (from  multiplying  93.333  by  111.4) 

Shanghai  Tls.  100=Ku-p'ing  Tls.  91.2.4.0 

=  Haikvvan  Tls.  89.7.6.6 

=Ts'ao-p'ing  Tls.  93.3.3.3 

Ts'ao-p'inii  Tls.  100=Shanghai  Tls.  107.1.4.3 

K'u-p'ing  Tls.  100=Shanghai  Tls.  109.6.0.0 


Memo,  re  silver  of  various  sorts  at  Shanghai.,  with  values  and 

weights,'  1896. 

1.  Shanghai  is  the  great  trading  center;  all  kinds  of  merchandise 
arrive  and  depart  and  many  banks  are  open  there,  doing  large  business. 

2.  Accounts  are  kept  in  Shanghai  taels,  called  kuei  yin,  also  called 
tau  qui  yin,  also  called  chiao  pai  yin. 

3.  There  are  also  Ts'ao-p'ing  taels  and  K'u-p'ing  taols  and  Kua«i- 
p'ing  taels. 

4.  For  Ts'ao-p'ing  and  K'u-p'ing  taels  there  are  scales  and  weights, 
but  the  Kuci-]:)'ing  and  Kuan-p'ing  taels  are  names  or  desigiialions  of 
value  simpl}',  and  there  are  no  corresponding  scak^'^  and  weights. 

5.  There  is  a  Kung-ku  office  for  testing  and  valuing  silver  at 
Shanghai. 


r.OLD    STANDARD    IN    INTERNATIONAL    TRADE.  247 

0.  When  silver  is  brought  to  this  Knng-ku  office  it  is  weighed  with 
the  Ts'iio-p^ing-  scales  and  weights  which  were  used  by  the  merchants 
in  the  grain  and  pulse  trade  before  the  treaties  opened  the  port.  The 
office  then  writes  on  the  silver  its  weight  in  Ts'ao-p'ing  taels  and  also 
its  touch  or  quality.  A  subsequent  calculation  has  to  be  made  to  tix 
its  value  in  Kuei-p'ing,  K'u-p'ing,  or  Kuan-p'ing  taels. 

7.  Ninety-eight  Ts'ao-p'ing  taels  are  equal  to  100  kuei  yin  taesl; 
but  as  there  are  no  Kuei-p'ing  scales  and  weights,  it  is  not  known 
whether  this  dili'erence  is  a  discount  on  weight  or  on  touch.     Formerly 

the  tau  kuei  yin  was  styled or  yiian-ssii  yin,  and  then  was  made 

up  of  small  round  cakes  weighing  about  1  tael  each;  and  as  for  kuei 
yin,  when  compared  with  the  Kung-ku's  present  standard,  its  quality 
is  expressed  thus:  Chii  hsui  erh  shi,  which  means  100  taels  weight 
of  kuei  vin  silver  has  a  discount  of  2  taels  and  is  taken  as  being  only 
98  taels." 

8.  The  yiian-ssu  silver  is  now  not  met  with.  Current  silver  or 
S3"cee  varies  in  touch  from  4  to  6  degrees  of  betterness;  and  these 
degrees  are  expressed  in  kuei  yin  taels. 

9.  When  asked  to  calculate  on  the  suan-pan  the  value  of  100  taels 
Ts'ao-p'ing  in  kuei  yin  silver,  a  Shanghai  banker — 

Taels. 

Will  tirst  put  down 100 

Will  add  for  betterness  5  per  cent '. 5  [105] 

For  Tls.  100  will  add  2  per  cent 2  [107] 

For  Tls.  7  will  add  2  per  cent 0.  14 

Foi-  Tls.  0.14  will  add  2  per  cent 0. 0028 

For  Tls.  0.0028  will  add  2  per  cent 0.  000056 

And  the  result  will  be  Shanghai  silver 107. 142856 

10.  Similarly,  if  the  value  of  100  K'u-p'ing  taels  is  to  be  expressed 
in  Shanghai  silver — seeing  that  the  standard  for  K'u-p'ing  silver  is 
said  to  be  5.60  taels  and  that  100  K'u-p'ing  taels  equal  101.80Ts'ao-p'ing 
taels  in  weight,  a  banker  would — 

Taels. 

First  of  all  set  down 100 

Add  for  weight 1.  80 

Add  for  touch , 5.  60 

Thus  making  Ta'ao-p'ing  taels 107.  40 

equal  to  100  K'u-p'ing  taels,  and  further  calculation  shows  that  as  98 
Ts'ao-p'ing  taels  are  equal  to  100  Shanghai  taels,  so  107.40  Ts'ao-p'ing 
taels  are  equal  to  109.60  Shanghai  taels;  therefore,  100  K'u-p'ing  taels 
equal  109.60  Shanghai  taels. 

11.  So,  too,  in  the  case  of  the  Haikwan  tael — inasmuch  as  100  Haik- 
wan  taels  ecpial  in  weight  102.80  Ts'ao-p'ing  taels  and  the  touch  is  said 
to  be  6  taels  on  100  taels  weight,  a  })anker  would — 

Taels. 

First  of  all  set  down 100 

Add  for  weight 2.  80 

Add  for  touch,  at  Haikwan  taels  6  per  cent  on  102.80 6. 168 

Add  for  meltage 0.  204 

Thus  making  Ts'ao-p'ing  taels 109. 172 

equal  100  Haikwan  taels.  But  as  98  Ts'ao-p'ing  taels  are  equal  to 
lOo  Shanghai  taels,  .so  109.172  Ts'ao-p'ing  taels  are  equal  to  111.4 
Shanghai  taels;  that  is,  100  Haikwan  taels  equal  111.4  Shanghai  taels. 


248  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

12.  As  regards  comparative  values,  therefore,  the  following  may  be 
taken  as  the  standard: 

Ts'ao-p'ing  Tls.  100  =  Shanghai  Tls.  107.1.4.3 
K'u-p'ingTls.  100  =  Shanghai  Tla.  109.6.0.0 
Haikwan  Tls.  100  =  Shanghai  Tls.  111.4.0.0 
Shanghai  Tls.  100  =  K'u-p'ing  Tls.  91.2.4.0 
i.e.,  Haikwan  Tls.  89.7.6.6 
i.e.,  Ts'ao-p'ing  Tls.  93.3.3.3 

13.  What  precedes  refers  chiefly  to  comparative  values;  accordingl3% 
if  one  desires  to  know  hov/  many  English  pounds  sterling  can  be  bought 
in  London  with  so  much  Haikwan  or  K'u-p'ing  or  Ts'ao-p'ing  silver 
at  Shanghai,  he  has  only  to  ask  the  market  remitting  rate  for  Shanghai 
kuei  yin  and  calculate  accordingly.  Just  now  3  English  shillings  is 
the  exchange  value  of  the  Shanghai  kuei  yin  tael;  that  is,  1,000 
Shanghai  taels  will  buy  a  draft  for  3,000  shillings,  i.e.,  £150. 

14.  If  one  asks  about  weights  without  reference  to  touch  of  silver 
or  any  such  items,  the  following  figures  give  the  results  of  compari- 
sons of  weights  made  at  the  Kung-ku,  Taot'ai's  yamen,  and  foreign 
French  and  English  banks  at  Shanghai  (the  Ts'ao-p'ing  scales  and 
weights  are  the  bases  of  all  calculations): 

101.80  Ts'ao-p'ing  taels=100  K'u-p'ing  taels. 

102.80  Ts'ao-p'ing  taels=100  Haikwan  taels. 

1  Ts'ao-p'ing  tael  in  English  weight  weighs  565.6375  grains. 

1  Ts'ao-p'ing  tael  in  French  weight  weighs     36.6527  grams. 

1  K'u-p'ing  tael  weighs \  ^l^fj'^'"'^- 

^      *  "  i    37.312  grams. 

1  Haikwan  tael  should  weigh |    g^'gg  |^^|JJg' 

15.  Accordingly,  if  we  discuss  money  and  remittances  from  Shanghai 
to  London,  and  if  1,096  Shanghai  taels  equal  1,000  K'u-p'ing  taels, 
and  if  the  exchange  value  of  the  Shanghai  tael  is  3  shillings,  then 
200,000,000  K'u  p'ing  taels  are  equal  to  219,200,000  Shanghai  taels, 
and  therefore  would  buy  i.'32, 880,000.  If  we  discuss  weights  and 
purchase  of  the  conmiodity  silver  by  weight,  then,  inasmuch  as  480 
grains  equal  one  ounce,  and  one  K'u-p'ing  tael  weighs  575,82  grains, 
200,000,000  K'u-p'ing  taels  weight  will  equal  115,164,000,000  grains, 
i.  e,,  239,925,000  ounces;  and,  further,  seeing  that  at  present  bar  sil- 
ver is  quoted  at  SO^V  d.  per  ounce,  239,925,000  ounces  of  silver  would 
cost  in  London  £30,552,949  4s.  4id.  But  of  course  the  simultaneous 
purchase  of  so  large  a  quantity  of  silver  would  probably  send  up  its 
price,  and  freight,  etc.,  would  have  to  be  paid  on  it  from  London  to 
Shanghai;  so  that  to  lay  down  in  Shanghai  200,000,000  K'u-p'ing  taels 
weight  of  bar  silver  bought  in  London  would  in  the  end  cost  more 
than  3,055  wan  pounds  sterling  of  mere  iiguring  calculation.  There 
would,  besides,  be  the  time  required  to  bring  out  so  much — possibly 
two  or  three  months. 

16.  If  it  is  said  that  a  Chinese  tael  weight  is  equal  to  579.84  grains, 

the  tael  spoken  of  is  the  Canton  tael  and  originated  in  1770  (Chien 

Lung  34th  year)  with  the  13  factories  at  Canton  before  the  treaties. 

According  to  the  treaty  taritf  rules  100  Chinese  catties  are  equal  to 

Hr.r.1  1     coarse  weight     ^,        ,  „,  .  ^     ,      ...        .  , 

ISSi  pounds  .  -.-      •     ;   therefore,  one  Chinese  tael  will  weigh 

"   ^  avoirdupois   '  '  *= 

1.333  coarse  weight    .  .,  r>.  k  •  koo  o/^ 

"'iT~  ounces     •   i       -.  -,  i.  e.,  1,215  ounces,  i.  e.,  583.20  grains 

It  avoirdupois  '  '     '  '  '  & 

n  'If 

.  ,       — ,  or  French  weight  37.783  grams.     But  really  the  Canton 


GOLD  STANDARD  TN  INTERNATIONAL  TRADE.       249 

tacl  ordinarily  used  is  one-half  per  cent  lighter,  weighing  only  37.58- 
French  grains,  or  579. Si  English  grains. 
20.  IX.  '95. 


A"'  u-p''ing  toeights. 

1.  In  transactions  between  Chinese  and  foreigners  the  Canton  tael 
is  the  oiu'  in  general  use,  as  the  port  from  which  it  takes  its  name  is 
the  one  which  was  first  opened  to  foreign  trade  in  China. 

According  to  the  suppIenuMitary  Franco-Chinese  arid  Anglo-Chinese 
treaties  signed  at  Shanghai  in  November,  185S,  the  Canton  tael  ought 
to  weigh- 
in  French  weiglit,  37.783  grams. 

In  English  weight,  L333  ounces  avoirdupois=1.215  ounces  troj',  or 

=24.30  pennyweights. 
=583.20  grains. 

The.-se  proportions  are  based  on  the  convention  made  at  Canton,  in 
1770,  between  the  supercargoes  of  the  old  East  India  (^^ompany  and 
the  privileged  Chinese  merchan.ts  who  formerly  there  possessed  the 
monopoly  of  the  trade  with  foreigners. 

But  in  reality  the  Canton  tael,  as  in  ordinary  use  in  China,  is  i  per 
cent  lighter  than  the  above-mentioned  standard  and  does  not  weigh 
more  than  37.58  French  grams  (according  to  the  scales  of  the  agencj^ 
of  the  Comptoir  d'Escompte  de  Paris);  according  to  the  basis  adopted 
by  the  English  banks: 

1.208  ounces  troy  weight. 
24.16    pennyweights. 
579.84    grains. 
*  *  -x-  *  *  *  * 

2.  The  Ts'ao-p'ing  tael  weight  of  bra.ss  is  the  basis  of  all  monetary 
calculations  when  the  value  of  sycee  is  in  question,  it  being  used  for 
weighing  the  sj'cee. 

I  have  compared  the  troy  weights  of  the  Comptoir  with  the  Ts'ao- 
p'ing  weights  at  the  Comptoir,  the  Haikwan  Bank,  and  the  Kung-ku 
office,  with  results  varying  from  565.72  grains  to  565.56  grains  as  the 
weight  of  1  Ts'ao-p'ing  tael;  but,  as  the  weights  of  the  Kung-ku  office 
are  accepted  as  the  local  standard  and  their  balances  considered  to  be 
accurate,  I  prefer  taking  the  weight  ascertained  there  to  an  average 
of  several  weighings  at  diti'erent  places.  By  the  Kung-ku  weights  a 
brass  weight  of  100  ounces  troy  weighed  84.86  Ts'ao-ping  taels. 

100  oun(;es=48,000  grains^84.86=565.6375. 
1  Ts'ao-p'ing  tael  weighs  565.6375  grains. 
1  Ts'ao-p'ing  tael  w^eighs  (or  should  weigh)  36.6527  grams. 

Also  by  the  Kung-ku  weights — 

101.80  Ts'ao-p'ing  taels  weight=100  K'u-p'ing  taels  weight. 
*****  -X-  * 

3.  K''u-p''ing  taels. — As  to  weight:  1  procured  from  the  Haikwan 
Bank  a  set  of  brass  weights  with  the  characters  K'u-p'ing  cut  on  them, 
which  were  compared  for  me  at  the  Kung-ku  office  with  the  sets  of 
troy  and  gram  weights  from  the  Comptoir,  as  well  as  with  the  Kung-ku 
Ts'ao-p'ing  weights.  It  was  found  that  the  50-tael  K'u-p'ing  weight 
weighed  50.90  Ts'ao-p'ing  taels,  and  it  was  indorsed  accordingly; 
hence — 

100  K'u-p'ing  taels  weigh  101.80  Ts'ao-p'ing  taels. 


250       GOLD  STANDARD  IN  INTJ^RNATIONAL  TRADE. 

For  the  sake  of  uniformity,  we  may  multiply  the  weight  obtained 
for  the  Ts'ao-p'ing-  tael,  viz.,  565.637  grains,  by  101.80,  the  proportion 
given  above,  and  take  the  result,  575.818  grains,  as  the  weight  of  the 
K'u-p'ing  tael. 

1  K'u-p'ing  tael  weighs  (or  should  weigh)  575.82  grains. 

1  K'u-p'ing  tael  weighs  (or  should  weigh)  37.312  grams. 

******* 

(The  above  extracts  are  taken  from  memoranda  drawn  up  by  M. 
Pietsch,  of  the  Comptoir  d'Escompte,  in  1864,  and  Mr.  P.  Martin,  of 
the  Shanghai  customs,  in  1880.) 


(c)  Scarcity  of  Copper  Cash — Mr.  Woodruff's  Remedial  Suggestions — Y.  Office 
Series,  Customs  Papers,  No.  50. 

Memorials  to  the  Throne  from  several  provinces  having  recently 
drawn  prominent  attention  to  the  inconvenience  and  distress  caused  by  a 
steadv  rise  in  the  value  of  the  ordinary  Chinese  medium  of  exchange — 
the  copper  cash — as  measured  by  silver,  the  accompanying  dispatch 
from  Mr.  Woodruff,  commissioner  of  customs,  suggesting  a  line  of 
policy  for  adoption  by  the  Government  to  restore  the  cash  to  its  former 
stable  position,  is  now  issued  for  the  use  of  the  service. 
By  order. 

Alfred  E.  Hippisley, 

Chief  Secretary 
Inspectorate-General  of  Customs, 

Peking^  August  13^  1896. 


No.  1337.]  CusTOM-HousE, 

Icliang^  June  SO.,  1896. 

Sir:  On  the  11th  of  March  the  governor  of  Hupeh,  and  on  the  23d 
of  Maj'  the  viceroy  and  governor  jointly  fixed  a  relative  rate  between 
Hupeh  dollars,  dollar  and  cash  notes,  and  copper  cash,  1  beg  to 
inclose  copies  of  the  proclamations,  with  Mr.  Parr's  translations. 

The  fixing  of  the  rate  was  to  remedy  the  present  most  harmful 
"dearness"  of  cash,  but  the  scheme  has  been  rendered  nugatory  if,  as 
reported,  the  Government  offices  do  not  accept  it;  and  for  them  it 
would  be  revolutionary,  as  it  is  well  known  that  a  considerable  por- 
tion of  their  income  is  derived  from  a  manipulation  of  the  exchange 
between  silver  and  cash.  There  is,  however,  a  practical  palliative  for 
a  part  of  the  evil. 

The  "dearness"  is  apparentl}^  due  partly  to  a  fall  in  the  value  of 
silver  and  partly  to  a  scarcity  of  the  cash. 

The  insta])ility  in  the  value  of  silver  is  caused  by  the  irregular 
diminution  of  demand  in  western  countries,  and  can  be  remedied  onl}' 
by  international  bimetallism.  When  this  conies  in  and  silver,  again 
linked  with  gold,  consecjuently  fluctuates  less  than  now  with  other 
(;onnnodities,  when  there  h;is  been  a  root  and  branch  reform  of  China's 
system  of  official  salaries  and  ofiicial  accounts,  and  when  its  currency 
is  imperially,  not  provincially,  managed,  it  will  be  possible  to  make 
cash  token  coin,  rate  them  to  silver,  and  keep  the  two  interchangeable 
at  par.  J^ut  until  part  at  least  of  this  has  come  to  pass  there  is  no 
remedy  for  the  fluctuations   in  exchange   between   silver  and   cash. 


UOLD  STANDARD  IN  TNTKRNATIONAL  TRADE.       251 

The  consequences  of  these  lluctAiations  would  ohviousl^y  only  be  worse 
were  siher  lc<>:il  tencUn-  in  ('hina  hy  bicl  instead  of,  as  now,  ])y  weight 
and  purity.  Standard  silver  coins  shoidd  he  avoided  until  the  world 
has  returned  to  its  senses. 

As  to  the  other  part  of  the  evil — the  scarcity  of  cash— its  original 
cause  was  prol)ably  insufficient  Government  coinage.  To  supply  the 
deticiency  there  has  been  an  unusual  influx  of  inferior  cash,  which, 
making  the  good  cash  the  ""dearer"  money,  has  inevitably  tended  to 
drive  it  out  of  circulation  into  the  melting  pot  and  elsewhere.  Par- 
tially efl'ective  prohibition  of  the  inferior  cash  has  increased  the 
stringency. 

Attempts  have  alread}^  been  made  in  the  right  direction  by  issuing 
new  cash  from  the  new  mints.  I  venture  to  suggest  that  the  Imperial 
Government  go  further,  and — 

1.  Assume,  through  deputies,  a  closer  direction  of  the  provincial 
mintage  to  insure  uniformity,  continuity,  etc. 

2.  Proclaim  to  the  people  that  after  a  date  named  the  old  cash  will 
no  longer  be  legal  tender;  that  one  pattern  of  the  new  cash  has  been 
selected  and  made  legal  tender  for  the  whole  of  China;  that  all  old  cash 
brought  to  the  mints  will  l)e  re-minted  without  fee  into  new  cash,  and 
that  all  material  (i.  e.,  the  selected  metals  in  their  due  proportions) 
brought  to  the  mints  will  be  minted  without  fee. 

3.  Itself  buy  up  and  remint  old  cash,  and  while  the  great  dearth 
continues  even  buy  material  and  mint  new  cash  for  Government 
expenditure. 

4.  Put  the  whole  strength  of  the  two  new  mints,  day  and  night,  into 
the  minting  of  new"  cash,  even  to  the  deferring,  if  necessarj^  of  the 
silver  coinage,  and  encourage  the  establishment  of  more  branch  mints 
with  foreign  machinery. 

5.  After  the  issue  of  the  new  cash  is  fairly  under  way,  see  that  the 
inferior  cash  in  circulation  are  contiscated  and  destroyed. 

So  long  as  cash  are  "dear"  because  of  scarcity  there  will  be  a  profit 
in  the  metals  when  coined  that  will  attract  people  to  the  mints.  When 
the  volume  of  the  new  cash  becomes  sufficient  for  the  needs  of  trade 
their  currency  value  will  necessarily  approximate  their  intrinsic  value 
(cost)  relatively  with  commodities  in  general,  including  silver,  and  the 
mints  thus  merely  providing  a  market  for  the  metals  at  the  market 
price  will  become  less  attractive.  If  the  cash  l^ecome  redundant  the}' 
will  be  less  profitable  as  currency  than  as  metals.  In  brief,  under 
this  system,  China's  cash  currenc}^ — its  only  standard  coinage— would 
be,  as  all  currencies  should  be,  automatic,  and  once  established  the 
Government  would  only  have  to  provide  the  people  with  facilities  for 
its  free  coinage. 

If  silver  continues  to  fall  in  value,  cash,  freed  from  the  "  dearness" 
of  scarcity,  and  therefore  to  that  extent  less  "dear"  in  silver,  must 
still  be  "dear"  when  measured  in  it,  and  if  China  is  not  reformed  the 
exchange  will  still  be  manipulated  by  interested  persons;  but  the 
present  unusual  fluctuations  of  cash  relatively  with  commodities  (that 
exist,  however,  disguised  in  retail  price  by  well-known  devices)  will 
be  rendered  to  the  benefit  of  ever3djody  but  the  money  changers. 
I  have,  etc., 

F.  E.  Woodruff, 
Commissionet'  of  Customs. 

Sir  Robert  Hart,  Bart. ,  G.  C.  M.  G. , 

Insjjector- GeiKral  of  Oi'/^tomfiy  Peking. 


252       GOLD  STANDARD  IN"  INTERNATIONAL  TRADE. 

[Inclosure  No.  3.] 

The  governor  of  Tlupeli  in  the  matter  of  issuing  a  jJroclanuUion. 

Formerly  a  string-  of  cash  was  equivalent  to  a  little  over  6  mace  in 
silver.  Since  last  year,  however,  the  price  has  been  daily  increasing. 
At  present  a  string-  is  equal  to  as  much  as  8  mace  2  candarins,  a  price 
not  hitherto  reached.  Though  this  "dearness"  is  generally  attributed 
to  insufficiency  of  cash,  yet  it  is  dou])tful  if  hoarding  for  speculative 
purposes  and  smuggling  out  of  the  country  have  not  also  largely  contrib- 
uted to  bring  this  about.  If,  therefore,  this  state  of  things  is  allowed 
to  continue,  not  only  will  the  market  be  ali'ected,  but  the  poor  people 
will  suffer  seriously  in  their  efforts  to  gain  a  livelihood.  It  now 
becomes  necessary  to  think  of  some  means  to  remedy  this  evil;  steps 
must  be  taken  to  lower  the  high  price  of  cash. 

Let  the  rate  for  cash  be  fixed  at  Hankow  taels  o.  7.  3.  o.  per 
thousand. 

Let  the  Shan-hou-chii  (a  kind  of  large  Government  council)  appro- 
priate 100,000  strings  of  standaid  cash  from  the  revenue  collected  and 
issue  notes  of  1,000  cash  each,  equal  to  7  mace  3  candarins  in  silver, 
both  to  be  put  into  immediate  circulation. 

Let  the  treasurer  provide  silver  for  the  Hupeh  mint,  to  be  coined 
into  dollars,  and  let  these  dollars  be  each  worth  1,000  standard  cash. 

These  measures  arc  adopted  in  the  hope  that  the  dollars  and  notes 
may  supplement  the  copper  cash  in  circulation,  so  as  to  restore  it  to 
its  normal  rate  and  at  the  same  time  meet  the  increased  demand. 

The  provincial  treasurer  and  the  taotai  of  the  Shan-hou-chii  having 
requested  me  to  notify  the  people  to  the  above  effect,  1,  besides  giving 
instructions  to  all  officials  concerned,  hereby  issue  this  proclamation 
for  the  information  of  all  officials,  merchants,  soldiers,  citizens,  and 
others.  When  you  transact  business,  pay  duties,  taxes,  and  all  other 
Government  dues,  or  receive  money  from  the  Government,  remember 
that  treasury  notes  and  local  dollars  are  legal  tender,  each  note  of 
1,000  cash  to  be  equivalent  to  Hankow  taels  o.  7.  3.  o.  and  each  dol- 
lar to  1,000  standard  cash.  These  are  fixed  rates,  so  if  merchants  or 
others  dare  to  disobey  my  orders  by  again  raising  the  rate  of  cash  or 
by  hoarding  for  speculative  purposes,  etc.,  they  shall,  when  discovered, 
be  severely  punished.  On  the  other  hand,  if,  when  the  people  pay 
taxes,  duties,  etc.,  any  customs  official  or  district  magistrate  refuses  to 
accept  the  above-mentioned  dollars  or  notes,  he  will,  on  the  charge 
being  proved,  be  impeached. 

Let  all  obey  this  without  hesitation. 

A  special  proclamation. 

Kuang  Hsii,  22d  year,  1st  moon,  28th  day. 


[Inclosnre  4.] 

Chang,  button  of  the  first  class,  president  of  the  board  of  war,  vice- 
president  of  the  imperial  censorate,  viceroy,  and  in  supreme  control  of 
the  military  and  commissariat  departments  in  Hunan  and  Hupeh;  and 
T'an,  button  of  the  first  class,  vice-president  of  the  board  of  war,  sec- 
ond vice-president  of  the  im])erial  censorate,  t'i-tu  of  Hupeh, Wuchang, 
etc.,  in  the  matter  of  issuing  a  proclamation. 


GOLD    STANDARD    IN    INTKKNATIONAL    TKADK.  '253 

We  obtained  80iiie  time  ago,  through  a  memorial  to  the  Throne,  per- 
mission to  establish  mints  at  Wuchano-  to  coin  silver  dollars  for  circu- 
lation in  the  ditierent  provinces.  Owing  to  the  scarcity  of  "standard " 
cash  in  Hupeh  it  was  subsequently  decided  to  give  the  silver  dollar  a 
fixed  "cash''  value,  and  to  order  it  to  be  accepted  as  legal  tender  in 
payment  of  land  taxes,  customs  duties,  likin,  and  salt  tax. 

Since  many  provinces  had  their  own  dollars,  and  since  the  dollars 
coined  by  an}'  particular  province  could  only  be  used  in  payment  of  the 
Government  taxes  of  that  province,  it  was  ultimately  discovered  that, 
in  order  to  prevent  complications,  they  should  bear  on  their  faces  the 
name  of  place  or  province  where  coined.  Notice  to  this  effect  has 
already  l)een  given. 

We  now  find  that  the  troubles  caused  by  the  cash  question  are  daily 
increasing,  and  ha\c  therefore  evolved  a  plan  to  remedy  tliis  evil.  We 
have  instructed  the  provincial  treasurer  to  establish  a  government 
bank  at  Wuchang  for  the  purpose  of  buying  and  selling  copper  cash 
and  siher  dollars. 

We  also  iind  that  the  moneys  annually  collected  in  payment  of  land 
taxes,  likin  duties,  etc.,  amount  to  large  sums,  and  that  a  scarcity  of 
standard  cash  is  experienced  in  the  country  as  well  as  in  the  cities; 
indeed,  the  many  ways  devised  bv  the  people,  and  the  difficulties  the}^ 
meet  with  when  attempting  to  buy  standard  cash  for  the  purpose  of 
paying  taxes,  can  easily  be  imagined. 

Now,  the  reform  of  the  currency  must  begin  with  the  cash  issued  in 
payment  of  public  taxes.  Since,  therefore,  a  vsilver  dollar  is  partially 
to  supersede  copper  cash,  it  must  be  given  a  fixed  "cash"  value  for 
public  convenience. 

Let  one  silver  dollar  coined  by  this  province  be  equivalent  to  1,000 
standard  cash,  and  let  merchants  and  others  buy  them  at  this  rate  and 
pay  the  customs  officials  and  magistrates  with  them  at  the  same  rate — 
there  shall  not  be  the  slightest  discount — so  as  to  insure  public 
confidence. 

Meanwhile  additional  machiner}'^  will  be  purchased  to  enable  the 
mints  to  coin  50,  10,  and  5  cent  pieces,  all  to  bear  the  name  of  the 
province,  and  to  be  valued  at  a  proportionate  rate  of  1,000  cash  to  the 
dollar,  and  to  be  used  in  the  same  way  as  standard  cash.  Dollar  notes 
bearing  the  seal  of  the  provincial  treasurer  will  also  be  issued  and  put 
into  circulation  concurrently  with  the  1,000-cash  notes  issued  by  the 
Shan-hou-chii,  so  that  the  latter  may  not  run  short. 

Let  it  be  known  to  soldiers,  citizens,  etc.,  that  though  standard  cash 
are  scarce,  the  local  dollars  and  cash  and  dollar  notes  are  the  same  as 
standard  cash;  let  three  kinds  of  currency  be  in  circulation  among  the 
people. 

From  the  wealthy  trader  to  the  humble  peasant,  whoever -uses  the 
above-mentioned  dollars  and  notes  in  pa^nng  taxes  will  thus  be  enabled 
to  do  so  with  greater  facility. 

In  cases  where  silver  is  required  instead  of  cash,  let  one  dollar  be 
equal  to  the  silver  value  of  1,000  cash. 

Dollars  are  easily  carried  and  are  not  cumbersome,  and  after  they 
have  been  in  circulation  for  some  time  they  can  not  fail  to  restore  the 
price  of  copper  cash  to  its  normal  state. 

We  are  informed  that  when  the  people  pay  taxes,  likin,  etc.,  the 
officials,  shupan,  clerks,  etc.,  purposely  object  to  the  size  of  the  cash 
paid,  and  would  accept  only  the  largest  coins;  they  even  go  so  far  as 


254       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

to  exact  illeoal  fees.  These  abominable  practices  are  truly  regrettable. 
Nov/,  since  there  are  dollars  and  dollar  and  cash  notes,  the  officials 
iimst  be  ready  to  accept  them  as  legal  currency  Jis  soon  as  they  are 
presented.  No  exaction  is  to  be  allowed  in  future;  and  we  also  here])y 
warn  magistrates  and  customs  officials  that  if  they  refuse  to  accept  the 
dollars,  etc.,  mentioned  above  on  any  pretext  whatever,  or  raise  objec- 
tions for  the  purpose  of  extorting  money,  they  will  be  impeached  or 
otherwise  severely  punished  after  the  charge  brought  against  them  by 
the  suffering  merchant  shall  have  been  proved. 

This  important  step  is  taken  to  remedy  the  evils  of  the  cash  cur- 
rency, out  of  pit}^  for  merchants  and  others.  The  a))ove  rules  shall 
and  must  be  carried  into  effect,  and  the  evil  designs  of  shupan,  etc., 
can  never  interfere  with  their  being  enforced. 

Let  this  be  obeyed  by  all. 

A  special  proclamation. 

Kuang  Hail,  22nd3^ear,  4th  moon,  11th  day. 


(cZ)  China's  Defective  Currency. — Mr.  Woodruff's  Remedial  Suggestions  (with 
NOTES  BY  Dr.  J.  Edkins)  . — Customs  Papers  No.  52. 

1.  On  March  11,  1896,  the  governor  of  Hupeh,  and  on  May  23,  the 
viceroy  and  governor  jointly,  fixed  a  relative  rate  between  Hupeh  dol- 
lars, standard  copper  cash,  and  cash  and  dollar  notes.  The  most 
excellent  purpose  of  their  proclamations  was  to  remedy  the  present 
harmful  "dearness'"'  of  cash;  but  it  is  stated  that  difficulties  for  both 
officials  and  people  have,  unhappily,  made  it  impossible  to  carry  out 
the  plan. 

2.  The  relative  rate. — Formerly  western  countries  had  a  joint  stand- 
ard of  silver  and  gold  at  15  or  16  to  1;  but,  later.  Great  Britain,  Ger- 
many, France,  the  United  States,  and  other  nations  suddenly  changed 
to  a  single  gold  standard,  to  the  great  disturbance,  these  twenty  years 
or  more,  of  the  market  values  of  silver  and  gold,  in  which  the  markets 
of  China  have  necessarily  shared,  so  that  its  officials  and  people  must 
dread  that  the  rate  of  to-da}^  would  l)e  loss  on  the  morrow.  In  view 
of  this,  it  would  seem  best  to  teiuporarily  continue  to  exchange  cash 
by  tael,  and  silver  by  weight  and  purit}^  at  the  rate  of  the  day;  but 
the  single  gold  standard  is  doing  world-wide  harm,  and  in  time  all 
countries  must  unite  in  an  international  agreement  for  the  former 
joint  standard,  and  then  China  can  rate  cash  to  silver. 

3.  The  dearnexs  of  cash. — Whereas  at  Ichang  in  1882-83, 1,000  stand- 
ard cash  were  obtained  for  Ichang  0.58  taels  of  silver  990  tine,  now 
they  cost  0.86  taels,  to  the  affliction  of  the  people.  This  dearness  is 
due  to  both  a  lessening  in  value  of  .silver  and  the  increasing  scarcity 
of  cash.  The  lessening  of  the  value  of  silver  has  been  caused  by  the 
western  nations  giving  gold  a  monopoly  as  standard  money  and  setting 
silver  aside.  Until  there  is  an  international  agreement,  China  has  no 
remedy.  As  to  the  scarcity  of  cash,  there  has  been  l)ut  little  minting 
these  twenty  or  thirty  years — people  having  taken  advantage  of  the 
insufficiency  to  secretly  coin  and  circulate  small  cash.  In  trade,  one 
wishes  to  keep  the  larger  and  part  with  the  smaller,  but  so  the  large 
cash  have  been  hoarded  or  melted  to  make  utensils,  and  necessary  pro- 
hibition by  Gov(M"nment  of  the  coining  and  circulating  of  the  unlawful 
cash,  has  intensitied  the  dearth.     Evidently,  then,  although  the  fall  in 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  255 

the  value  of  silver  is  beyond  Chirui's  control,  it  is  within  its  power  to 
remedy  the  scarcity  of  cash. 

4.  Remedliil  t<u(j(/e><twn.s. — Feeling'  sorrow  for  the  distress  of  the 
people,  the  Government  has  already  had  cash  minted,  but  it  is  stated 
that  the  new  cash  do  not  circulate  nationalh^  and  may  prove  inade- 
quate.    In  this  connection  it  is  sug-o'ested  that — 

{a)  The  coinage  departments  of  the  board  of  rev^enue  and  works 
should  decide  on  the  materials  of  which  a  national  cash  is  to  be  coined. 
There  should  be  more  than  one  ingredient  (as  in  the  reign  of  Kien 
Lung,  for  example,  copper,  zinc,  lead,  and  tin  were  so  used),  in  the 
hope  of  a  greater  stability  in  their  aggregate  market  value,  which 
should  be  approximately  the  same  as  in  the  old  standard  ojish. 

{!>)  The  new  cash  should  be  improved  by  the  use  of  machinery,  but 
should  be  similar  in  appearance  to  the  old,  so  that  they  may  circulate 
the  more  readily  as  being  only  a  new  minting  of  old  cash. 

(c)  The  people  should  be  notified  that  after  a  date  named  the  old 
cash  will  be  prohibited. 

{({)  In  advance  of  that  date,  but  only  so  long  as  the  present  dearth 
continues,  the  mints  should  buy  old  cash  and  either  recoin  them  into 
new  cash,  or  melt  them  and  sell  the  materials,  and  should,  in  addition, 
buy  fresh  materials  to  coin  into  new  cash.  The  new"  cash  should  be 
used  either  in  (Tovermnent  expenditures  or  to  exchange  with  the 
people  for  old  cash. 

{<)  The  public  should  be  notified  that  before  the  date  named  all  old 
cash  should  be  taken  to  the  mints  to  be  recoined.  If  at  the  moment 
the  mints  have  no  new  cash  ready,  the  people  are  to  wait  for  them;  if 
there  are  new  cash  ready  the  mints  are  to  issue  them  at  once  and  after- 
wards recoin,  or  melt  and  sell  the  old  cash.  Old  standard  cash  should 
be  given  new  cash  in  exchange  to  their  face  value;  old  small  cash,  to 
their  market  value.     No  fee  should  be  charged. 

(/')  The  public  should  also  be  permitted  to  bring  the  materials  for 
new  cash  and  have  them  coined  into  or  exchanged  for  new"  cash  free  of 
charge. 

{g)  So  long  as  the  dearth  continues  the  mints  should  work  night  and 
day  to  provide  a  sufficiency,  even  if  this  temporarily  delays  the  coinage 
of  silver. 

(A)  At  the  date  named,  when  new  cash  are  in  sufficiency  everywhere, 
all  old  cash  still  in  circulation  should  be  confiscated  and  recoined  or  the 
materials  sold. 

(/')  After  the  date  named  the  people  should  still  be  permitted  to  at 
any  time  take  the  materials  to  the  mints  and  have  them  coined  into 
cash  free  of  charge, 

5.  Free  coin a<j<'.  of  cash. — The  Government  already  pays  the  mint 
expenses  of  the  cash  it  issues;  the  only  change  would  be  that  instead 
of  issuing  as  many  as  it  thinks  the  people  will  need  it  should  provide 
as  many  as  the  people  have  found  that  they  need.  For  when  cash  are 
dear  because  of  scarcity,  the  metals  of  which  they  are  made  are  w^orth 
more  in  them  than  in  the  market,  so  people  would  ])ring  them  to  the 
mints  for  the  profits  thi'ough  free  coinage.  When  the  cash  become 
sufficient  the  metals  are  worth  no  more  in  them  than  in  the  market, 
and  people  will  cease  to  be  eager.  When  they  are  redundant  the 
metals  will  be  worth  most  in  the  market.  The  overstocked  cash  shops 
must  devise  ways  to  avoid  loss,  and  not  only  will  no  one  take  metals 
to  the  mints  but  cash  will  be  sent  to  other  places  or  melted  to  obtain 
the  market  profit  on  the  materials. 


256  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

This  is  the  method  of  western  countries  with  gold  and  silver.  If  it 
were  adopted  by  China  for  cash,  not  only  would  there  be  no  cash 
famines,  but  unprincipled  men  would  no  longer  have  opportunities  to, 
b}^  means  of  the  dearth,  oppress  the  people.  Freedom  from  the  fear 
of  these  evils  would  facilitate  trade,  and  the  consequently  increased 
revenue  would  far  more  than  recoup  the  Government's  coinage 
expenses. 

6.  Silver  currency  difficulties. — The  mints  with  foreign  machinery 
have  coined  a  limited  number  of  dollars,  and  foreign  dollars  arc  used 
tosouie  extent,  but  for  the  rest  the  silver  currency  is  sycee,  exchanged 
by  weight  and  purity.     The  chief  defects  are — 

(«)  The  Chinese  money  balances  are  not  accurate,  no  two  giving 
exactly  the  same  result. 

(J)  There  are  different  units  of  weight.  Besides  the  customs  and 
treasury  taels  every  province  has  its  own  market  and  other  taels,  all 
differing  from  each  other. 

(c)  The  work  of  the  assay  offices  is  too  crude  to  inspire  confidence. 

{d)  The  purity  of  the  sycee  current  in  one  place  differs  from  that 
in  another,  so  that,  for  example,  Hupeh  sycee  does  not  circulate  in 
Kiangnan. 

Because  of  these  defects  there  are  constant  disputes  over  the  weight 
and  purity  of  the  sycee  that  waste  time  and  money  and  are  a  serious 
obstacle  to  trade. 

7.  Remedial  suggestions. — As  most  important  it  is  suggested  that — 
{a)  Everj^  official  treasury  and  ever}^  mint  should  procure  a  delicate 

money  balance  of  western  make  to  serve  as  a  standard,  Avhich  should 
be  in  exact  agreement  with  the  foreign  balance  used  at  the  Canton 
mint. 

{b)  The  weight  of  a  customs  and  a  treasur}^  taeFs-weight  of  pure 
silver,  expressed  in  grams  or  grains  troy,  should  be,  respectively, 
the  standard  of  the  customs  and  treasury  taels,  and  each  province 
should  similarly  fix  the  standards  of  its  market  and  other  taels. 

(c)  The  fineness  of  the  Chinese  and  of  the  current  foreign  dollars 
should  be  notified. 

{d)  China's  standard  silver  dollars  should  be  900  fine,  in  agreement 
with  the  United  States,  the  Latin  Union,  and  Japan. 

{()  It  should  be  notified  that  fractional  silver  coins  less  than  900  fine 
issued  by  the  Government  will,  on  presentation  at  the  mint  or  treas- 
ury, be  given  standard  dollars  to  their  face  value  in  exchange  without 
charge. 

if)  Temporarily,  all  sycee  stamped  b}'  an  assay  office  brought  to  a 
mint  should  be  scientifically  refined  into  silver  900  fine,  stamped  with 
"900  fine"  and  the  weight  in  customs  taels,  and  returned  without 
charge. 

8.  Taxes. — It  is  further  suggested  that  after  a  date  named  the  moneys 
received  for  taxes,  besides,  as  at  present,  accepting  standard  cash  at 
their  market  value,  shall  only  be  undefaced  Chinese  dollars,  foreign 
dollars,  in  the  fineness  of  which  has  been  notified,  and  sycee  stamped 
900  fine  1)3^  the  mints — all  reckoned  by  the  weight  of  the  pure  silver 
in  them.  When  the  Chinese  dollars  and  900  fine  sycee  l)ecome  sufl^i- 
cient,  a  date  should  be  again  named  after  which  foreign  coins  will  be 
received. 

9.  The  mints. — China's  territory  is  extensive,  its  population  large, 
and  its  need  for  cash  pressing.     More  mints  with  foreign  machinery 


GOLD    STANDARD    IN    INTKKNATIONAL    TRADE.  257 

should  be  e.sta])lislied  :it  important  points  through  the  provinces  to 
mint  both  (U)ll;irs  and  rash. 

10.  A  nat'iounl  eni't'cncy. — It  is  essential  that  the  copper  cash,  Chi- 
nese silver  coins,  and  mint-stainju'd  sycee,  f  j'om  whatever  mint,  should 
be  uniform,  in  order  that  they  may  be  current  throug-hout  China. 
Not  oidy  should  there  be  one  mint  law  for  all  the  provinces,  })ut  all 
provinces  should  execute  it  uniforndy.  The  coinaoe  departments  of 
the  board  of  revenue  and  works  should  therefore  station  deputies  well 
versed  in  the  mint  enartments  at  the  mints  to  cooperate  with  the 
suptM-intendents,  and  should  also  periodically  send  competent  inspect- 
ors to  visit  and  report  on  the  mints,  that  absolute  uniformity  of  coin- 
age throughout  the  Empire  may  be  insured. 

11.  Tlte  cash  standard. — China's  present  standard  of  copper  cash, 
with  silver  current  by  weight  arid  purity,  is  inferior  to  the  Western 
system  of  a  free  coinage  of  standard  gold  and  silver  money,  the  Gov- 
ernments themselves  issuing  the  silver  and  copper  token  coins;  but  at 
present  the  market  values  of  gold  and  silver  throughout  the  Avorld  are 
greatly  disturbed,  and  it  seems  })est  for  China  to  temporarily  pursue 
the  course  suggested  in  this  paper.  When  an  international  monetary 
agreement  has  been  effected,  China-  can  make  gold  and  silver  the 
stiindard,  and  again  itself  issue  the  cash,  and  then  a  relative  rate  can 
be  lixed  })etween  cash  and  dollars. 

F.  E.  Woodruff, 
Cmnmissioner  of  Customs. 
CusTOM-HousE,  Ichang.^  JJecember  ^,  1896. 


NOTES. 

2.  The  relative  rate. — Since  Great  Britain  adopted  the  gold  standard 
about  eighty  years  ago,  the  sudden  change  of  standard  should  be  said 
to  refer  to  Germany,  France,  and  the  United  States  of  America,  and 
Great  Britain  should  not  be  included. 

It  would  be  well  to  sav  that  China,  instead  of  waiting  for  the  future 
action  of  the  western  powers  in  modifying  the  present  standard  of 
currency,  should  herself  take  a  decided  part  in  negotiations  with  west- 
ern powers  on  this  point.  She  should  win  them  over,  one  by  one,  to 
bimetallic  views,  viz.,  fla})an,  the  United  States,  Russia,  Germany,  and 
France.  In  order  to  do  this  effectually,  ('hina  should  have  a  foreign 
adviser  on  currenc},  to  assist  the  board  of  revenue.  China  should 
provide  from  the  archives  of  the  revenue  board  and  of  the  treasurer's 
yamen  in  each  province  statistical  particulars  showing  the  amount  of 
cash  and  of  silver  in  circulation.  This  is  an  important  point,  because 
the  opinion  of  Chinese  financiers  would  have  weight  in  international 
negotiations  in  proportion  to  the  amount  of  China's  internal  and  for- 
eign trade  as  measured  Ijy  the  volume  of  her  currenc\\ 

3.  The  dearness  of  casJt. — The  dearness  of  cash,  due  to  want  of 
minting  during  late  years,  is  being  fast  removed.  The  native  corre- 
spondents in  the  papers  express  surprise  that  in  cities  where  new  cash 
are  in  the  market  no  important  change  in  the  copper  cash  value  of  sil- 
ver is  noticeable.  The  reason  of  this  is  that  what  is  called  dearness  of 
cash  is  reall}'  cheapness  of  silver.     Where  new  cash  have  been  made 

S.  Doc.  128,  58-3 17 


258       GOLD  aTANDARD  IN  INTERNATIONAL  TRADE. 

in  thelargeyt  quantities,  the  exo]ian<ie  is  still  not  nniteriall}^  improved; 
this  shows  that  the  main  evil  from  which  China  sutlers  in  regard  to 
money  is  the  cheapness  of  silver. 

In  the  tightness  of  money  it  is  not  known  what  is  the  proportion 
which  is  due  to  the  scarcity  of  cash,  and  what  proportion  is  due  to  the 
fall  of  silver. 

6.  Silver  currency  difficulties. — While  silver  is  cheap,  China  might 
just  as  well  buy  Mexicans  for  her  use  as  to  make  dollars  for  herself. 
The  time  is  scarcely  come  for  a  silver  currency.  The  Chinese  say 
themselves  that  Thibet  has  silver  coinage,  because  there  is  silver  in 
Thibet;  and  that  China  has  copper  currency,  because  China  has  cop- 
per. But  this  is  not  all.  Copper  cash  are  suited  to  China  as  dollars 
are  not:  this  has  been  so  in  the  past.  Now,  however,  through  the 
immense  amount  of  copper  in  use,  market  prices  have  changed;  3  cash 
buy  as  much  food  as  1  cash  bought  formerly.  This  opens  a  door  for 
the  entrance  of  dollars.  The  Chinese,  however,  need  be  in  no  hurry 
to  mint  them  while  they  can  get  Mexicans  and  British  dvdlars  at  so 
cheap  a  rate,  as  long  as  foreign  dollars  are  preferred  b}^  the  commer- 
cial class. 

10.  Anational  currency. — In  securing  a  national  currency^  w^ith  uni- 
formity in  the  coins  it  would  be  a  great  advantage  to  have  all  the  cash 
made  in  Yunnan,  where  copper  is  found  with  several  prefectures.  It 
would  cost  no  more  to  export  the  cash  when  made  than  it  does  to  con- 
vey the  copper.  There  were  formerly  cash  made  at  Mentgsz.  Here 
a  mint  might  be  organized  under  foreign  superintendence  having  con- 
nection with  the  customs  establishment  there. 

China  should  employ  foreign  financiers  to  assist  the  provincial  treas- 
urers, and  they  should  do  the  work  which  inspectors  of  mints  should 
.have  assigned  to  them. 

11.  The  cash  standard. — From  A.  D.  600  to  1700  the  standard  was 
on  the  whole  steady,  but  with  occasional  variations  1,000  cash  were 
equal  to  1  tuel  of  silver;  10,000  cash  were  equal  to  1  tael  of  gold.  In 
1770  the  taol  of  gold  was  equal  to  1.5^  taels  of  silver.  This  change  was 
caused  by  the  appreciation  of  gold  probably,  but  this  has  not  yet  been 
clearly  shown.  Yet  the  fact  that  1,000  cash  were  still  nearly  equal  to 
1  tael  of  silver  during  the  last  century  may  be  taken  in  evidence  that 
the  appreciation  then  observed  was  in  gold.  Thus  it  is  shown  that  if 
Chinese  financiers  would  bestir  themselves  they  might  be  able  to  adduce 
facts  in  the  history  of  money  which,  when  brought  before  the  next 
international  conference  on  currency,  would  possibly  have  a  decided 
effect  on  the  minds  of  the  members  of  the  conference. 

J.  Edkins. 

2.    EXTRACT    OF    REPORT    MADE    BY    H.    B.    MORSE,   OF    THE    CHINA 
BRANCH  OF  THE  ROYAL  ASIATIC  SOCIETY." 

Introduction. 

All  nations  have  passed  through  the  stage  of  chaos  in  their  currency 
and  measures.  In  western  countries  modern  legislation  has  done  much 
to  reduce  irregularity  to  order,  though  even  there  the  old  special  units 

«  Mr.  Mors(!  collectod  liis  material  by  .sending  circular  lettern  in  the  name  of  the 
Royal  Asiatic  Soci<'ty  to  j)eople  in  variouH  parts  of  China  conversant  with  the  situa- 
tion tliere.  The  statements  give  the  nature  of  the  investigation,  the  cjuestions  asked, 
and  various  extracts  from  the  rei)lies. 


(JOLD    STANDARD    IN    TNTP:KNATI0NAL    TRADE.  259 

still  linncr  oM  in  coininon  iisao-c.  In  China  sonic  spasmodic  efl'orts  liavc 
been  made  from  tim(>  to  time  to  secure  uniformity,  but  they  iia\c  never 
j;-ained  nuich  sup})ort,  and,  as  will  be  seen  from  the  following"  tables, 
chaos  reigns  supreme  through  the  whole  of  the  Empire.  In  many  of 
the  followinu-  contributions  reference  is  made  to  the  difficulty  of  finding- 
any  stjindard,  even  local. 

An  apology  is  due  to  the  various  contributors  to  this  inquiry  for 
not  printing  their  papers  as  received;  it  is  hoped,  however,  that  thc}^ 
will  recognize  the  utility  of  presenting  the  inforniiition  in  summarized 
tables  rather  than  giving  detached  information  under  all  heads  for  eacli 
place.  Where  any  contril>utor  has  given  special  information  it  has 
been  appended  in  the  shape  of  notes  under  the  proper  head. 

I  have  not  attempted  to  prepare  any  general  sunmiaries.  The  reason 
for  this  will  be  obvious,  when,  on  referring  to  the  tables,  it  is  remarked 
that  many  provinces  are  unrepresented,  many  others  only  covered  at  a 
few  points,  and  two  onl}^  (Kansu  and  Kiangsu,  the  latter  fairly  com- 
pletely) are  adequately  reported  on.  The  apathy  of  the  mercantile 
residents  in  China  on  this  subject,  which  so  closely  affects  their  inter- 
ests, is  remarkable,  not  one  paper  having  been  received  from  any 
mejnber  of  that  influential  body,  and  were  it  not  for  the  efforts  on 
their  behalf  made  by  the  missionaries,  Catholic  and  Protestant,  this 
inquiry  would  have  had  no  result. 

An  earnest  appeal  is  made  to  all  residents  in  China,  whether  mem- 
bers of  the  societ}^  or  not,  to  contribute  further  information  on  this 
important  subject.     There  are  three  points  to  be  kept  in  view: 

1.  To  check  and  (if  wrong)  rectify  the  statements  made  in  the  tables 
now  submitted. 

2.  To  send  full  information  on  the  lines  of  this  paper  regarding 
places  not  now  reported  on. 

3.  To  thus  collect  the  material  for  an  intelligent  summary  of  tne 
currency  and  measures  of  China  by  some  competent  hand. 

The  paper  now  presented  is  only  preliminary,  and  it  is  hoped  that 
the  society  may  soon  be  enabled  to  publish  tables  covering  every  part 
of  China. 

H.  B.  Morse. 

Pakhoi,  January  11^  1890. 


Circular  on  Currency  and  Measures  in  China. 
The  points  on  w^hich  information  is  sought  are  as  follows: 

CURRENCY. 

1.  What  are  the  kinds  of  tael  of  silver  (the  Haikwan  or tael 

excluded)  known  in  your  district?     Please  give  names  in  full,  thus 
Hsiang-p'ing  llua-pao  Yin,  togethei-  with  the  colloquial  name. 

2.  What  is  the  actual  weight  in  grains  (437^  grains  equal  to  one 
ounce  avoirdupois)  of  the  tael  of  each  Ping  (local  scale;^ 

3.  What  is  the  touch  or  fineness  of  each  of  the  several  kinds  of  silver 
(pure  silver  being  taken  as  1,000  fine)? 

4.  In  each  tael  of  currency  weighing  (so  many)  grains,  how  many 
grains  are  there  of  pure  silver  (1,000  fine)  i 


260       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

5.  How  man}'  taels  of  each  of  the  currencies  mentioned  })y  you  are 
considered  to  be  the  equivalent  locally  of  100  K'u-p'ing  taels  of  pure 
silver^ 

6.  What  relation  do  Mexican  dollars  bear  to  the  tael  commonly  used 
locaUy !;  (100  taels  equals  how  many  dollars). 

7.  What  kinds  of  copper  cash  are  used  in  your  district!'  What  is  a 
Tiao,  and  what  its  value? 

8.  What  relation  do  copper  cash  bear  to  the  Mexican  dollar  and  [or] 
the  local  tael  (! 

9.  To  what  extent  are  cash  notes  (paper  money)  used  locall}^  ?  If 
used  at  all  please  give  some  account  of  them, 

10.  Are  bank  notes  (or  bankers'  checks)  for  silver  used  in  your 
district  otherwise  than  as  checks  ? 

Gold. 

Rev.  P.  Hoang  (1)  states: 

Gold  ingots  are  not  in  common  use  in  trade,  but  only  for  hoarding. 
Hoarded  gold  is  generally  in  one  of  two  forms.  One  is  in  ingots 
shaped  like  a  small  boat,  about  0.09  meter  (3.6  inches)  long,  0.02  meter 
(0.8  inch)  wide,  and  weighing  360  grams  (5,555  grains  equals  11.575 
ounces  troy);  this  is  called  Gm  ten.  The  other  is  in  the  form  of  gold- 
leaf,  measuring  about  0.2  meter  (8  inches)  square,  and  weighing  about 
30  grams  (463  grains);  this  gold-leaf  is  called  Gin  ye  tze.  The  unit  of 
value  of  gold  is  called  huan;  e.  ^.,  if  1  ounce  of  gold  is  worth  18 
ounces  of  silver,  it  is  quoted  Shih  pai  yin  huan.  The  relative  value 
of  gold  to  silver  was  in  the  beginning  of  the  Ming  d3masty  (1375) 
four  times  greater;  under  the  Emperor  Wan-li  (1574)  of  the  same 
dynast}^,  seven  to  eight  times  greater;  at  the  end  of  the  Ming  dynasty 
(1635)  ten  times;  under  the  Emperor  Kang-hsi  (1662)  of  the  present 
dynasty,  ten  and  more  times;  under  the  Emperor  Kien-lung  (1737) 
twenty  times  and  more;  in  the  middle  of  the  reign  of  Tao-Kwang 
(1840)  eighteen  times;  at  the  beginning  of  the  reign  of  Hien-fung 
(1850)  fourteen  times;  and  at  present  (1882)  generally  eighteen  times. 

Silver  and  Copper  Cash. 

The  report  contains  a  table  giving  for  various  provinces,  prefec- 
tures, and  towns  the  names  in  both  English  and  Chinese,  of  the  tael  or 
various  taels  in  use  there;  the  weight  of  the  taels  in  grains  and  grams; 
the  fineness  of  the  silver  in  each,  and  the  weight  of  the  tine  silver  in 
grains  and  grams;  the  equivalent  value  of  the  special  tael  in  Haikwan 
taels  and  in  Ku'p'ing  taels,  and  the  value  of  the  local  taels  in  silver 
dollars.  Besides  this,  an  account  is  given  of  the  copper  cash  in  use  in 
the  different  localities,  there  being  given,  first,  the  denomination; 
second,  the  actual  number  in  the  tiao,  and,  third,  the  tiao  in  1  tael. 
A  last  colunui  is  left  for  notes. 

In  this  table  78  different  kinds  of  taels  are  enumerated  of  varying 
weights.  It  happens,  of  course,  at  times  that  two  of  these  taels  in 
different  localities  may  be  of  the  same  weight,  but  speaking  generally 
they  vary  each  from  the  other.  The  heaviest  tael  in  the  list  is  the 
Haikwan  tael,  at  583.3  grains  or  37.79  grams.  The  lightest  seems  to 
be  the  Quei-p'ing  tael,  520  grains  or  33.69  grams,  in  Wenchow-fu, 
Chekiang  Province.     The  others  vary  all  the  way  between  these. 


GOM)  STANDAUD  IN  INTKRNATION AL  TKADK.       2()1 

Tlio  jictiuil  munher  of  copper  easli  in  tlio  tiao  vnrips  from  1,000, 
wliioh  is  .supposed  to  be  th(^  normal  amount,  to  as  low  as  50  in  Peking. 
From  4S0  to  500  seems  to  l>e  not  uncommon,  and  it  is  cpiite  usual  for 
a  small  discount  of  2  to  20  cash  to  ))e  made  for  the  string. 

Notes. 

Note  1. — Note  on  Tientstn  currency. — Of  the  two  eqnivaleni,  values 
given  foi'  the  Ihing-p'ing  tael  at  Tientsin,  the  first  (100  Haikwan  taels 
etjual  lof)  T'u  taels)  is  the  late  at  which  foreign  merchants  pjiy  duties; 
the  second  (loo  llaikwan  taids  equal  106. 0;")  T'u  taels)  is  th(>  rate  fixed 
for  Chinese  merchants  in  paying  duties. 
Note  6. — liev.  E.  '1\  Williams  (IT)  states: 

1.  The  t(U'l. — There  are  three  kinds  of  tael  commonly  used  in  Nan 
kin:  The  ''K'u-p'ing,''  known  also  as  "Siieh-hwa  Yin,"  the  "Ts'ao 
p'ing,"  called  ''  Wan  Yin,"  and  the  "Siang-p'ing,"  or  "Ti-ch'ao  Yin."" 

As  a  matter  of  fact,  however,  these  are  three  methods  of  reckoning 
rather  than  three  kinds  of  tael.  The  "  Ts'ao-p'ing"  is  the  standard  and 
the  tael  commonly  used  in  Nankin.  Iji  "Ts'ao-p'ing"  100  taels  are 
100  taels,  but  if  a  transaction  is  conducted  in  •'K'u-p'ing,"'"'  to  every 
100  taels  2  taels  must  be  added;  that  is,  lOO  ''K'u-p'ing"  taels 
are  equal  to  102  "Ts'ao-p'ing.'''  100  *'8iang-p'ing"  are  but  98 
'^Ts'ao-p'ing."  The '^Ts'ao-p'ing"  tael  contains  563.72  grains.  The 
"Siang-ping"  is  used  in  paving  the  army  and  the  prizes  awarded  stu- 
dents at  the  semimonthly  examinations,  although  the  latter  are  sup- 
posed to  be  paid  in  "  K'u-p'ing"  taels.  My  Chinese  teacher  says  it  is 
a  common  saying  among  students  that  the  prizes  are  awarded  in 
"  K'u-p'ing.'"'  the  examining  official  pays  them  in  ''Ts'ao-p'ing,"  the 
minor  officials  distribute  them  in  "Siang-p'ing,'"  and  by  the  time  it 
reaches  the  student  the  tael  has  become  a  Mexican  dollar,  which,  on 
being  exchanged,  is  found  to  be  bad. 

I  have  not  been  been  able  to  discover  the  tineness  of  the  various 
kinds  of  silver  or  the  number  of  grains  of  pure  silver  in  each  tael. 
To  ever}^  such  question  the  bankers  I  have  asked  answer  that  the}'  do 
not  know.  They  determine  the  relative  value  by  touch  and  color,  but 
say  there  is  no  established  ratio.  No  doubt  they  are  wrong,  but  1 
have  not  been  able  to  push  my  inquiries  farther. 

A  Mexican  dollar  by  weight  is  said  to  be  0.74  tael,  but  it  does  not 
of  course  exchange  at  this  rate.  At  present  it  is  worth  but  0.6S  tael. 
A  hundred  taels  are  equal  to  146.86  dollars. 

2.  Cash. — All  the  cash  used  in  this  region  are  of  one  denomination — 
about  one  fifteen-hundredth  of  a  tael;  but  there  is  a  hn'ge  quantity  of 
bad  cash  and  small  cash  in  circulation. 

A  tiao  consists  of  ten  strings  or  974  good  cash  reckoned  as  1,000. 
Each  string  contains  nominally  100,  but  in  reality  only  98  or  95.  The 
95  cash  string  is  called  a  '^ti-tsz,''  and  is  indicated  by  a  knot  on  the 
end  of  the  string.  In  every  tiao  there  are  two  ti-tsz.  In  three  strings 
or  more  one  may  be  a  ti-tsz;  in  seven  or  more  two  ti-tsz  are  allowed. 

On  every  string  of  good  cash  there  may  be  two  or  three  small  cash 
or  counterfeit  cash;  as  a  matter  of  fact  there  are  many  more. 

These  spurious  cash  are  called  by  various  names:  "  Ts'ing-pau," 
"hiao-pMen-p'ien,"  '' shui-shang-p'iao,"  a  light,  thin  variety,  said  to 
float  on  water,  the  "  sha-tsz-tsz,"  which  contains  a  great  deal  of  sand, 
and  the  "ngo-yen"  in  which  the  hole  is  very  large  and  the  coin  very 


262       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

small.  This  is  not  to  be  confounded  with  an  ancient  coin  of  the  same 
name.  Other  names  are:  ''  Sui-ts'ien  "  and  "  lii-cheu-kw'an,"'  so-called 
because  nuich  of  this  counterfeit  cash  was  formerly  made  at  a  place  of 
this  name  in  Anhuei. 

There  is  still  another  variety  of  small  cash  known  as  "  hung-ts'ien," 
because  made  of  red  copper.  It  is  of  ancient  manufacture,  and, 
although  spurious,  passes  as  good  coins  on  account  of  the  quality  of 
the  copper.  As  many  as  five  o+'  this  variety  may  be  found  on  each 
string. 

A  Mexican  dollar  exchanges  for  1,030  good  cash  in  summer,  and 
1,080  in  winter.     A  tael  exchanges  for  from  1,500  to  1,600. 

There  are  strings,  however,  known  as  "  vih-kiu-tih,"  "  'rh-pah-tih," 
and  "  san-tsMh-tih,"  containing  10,  20,  or  30  small,  to  90,  80,  or  70  large 
cash.  One  can,  of  course,  exchange  at  a  much  higher  rate  for  this 
sort  of  cash. 

At  the  pawn  shops  a  tiao  is  1,000  in  reality  as  well  as  nominally.  No 
shortage  is  allowed.  This  is  true,  too,  in  the  payment  of  taxes  and  of 
bank  discount. 

I  presume  it  was  not  your  purpose  to  inquire  as  to  the  dates  of  the 
coins  or  the  inscriptions  they  bear.  There  is  great  variety  in  this 
respect,  though  most  of  the  cash  belongs  to  the  present  dynasty,  by 
far  the  larger  part  bearing  the  style  of  Kien-lung.  It  is  quite  com- 
mon, however,  to  lind  coins  of  the  Sung  dynasty,  and  there  are  many 
varieties  issued  b_v  old-time  rebel  kings.  It  seems  strange  to  a  for- 
eigner to  find  coins  200  yeai"S  old  in  general  circulation,  but  to  be  able 
to  handle  coins  of  the  tenth  century  in  this  matter-of-fact  way  is  simply 
marvelous.  To  the  Chinese  collector,  of  course,  with  his  coins  of  2,000 
years  ago,  these  seem  quite  modern.  Most  of  the  light,  thin  cash 
mentioned  above  as  the  "  shui-shang-p'iao"  bear  the  style  "  Kwang 
Chung  T'ung  Pao,"  are  of  unknown  date,  and  are  said  to  be  of  foreign 
coinage." 

In  using  large  quantities  of  these  small  cash,  1,000  hung  ts'ien  best 
quality  will  pass  for  900  cash,  of  medium  grade  1,000  are  equal  to  800, 
and  of  poorest  quality  1,000  are  reckoned  but  7(H)  good  cash.  Of  the 
ts'ing-pau  there  are  three  grades,  rated  respectively  at  600,  700,  and 
800  cash  per  1,000.  There  are  three  grades  of  the  hiao-p'ien-p'ien 
f^ilso,  which  pass  for  450,  500,  and  550  per  1,000,  and  two  grades  of  the 
sha-tsz'-tsz"'  which  command  l-OO  and  500  cash  per  1,000. 

4.  S/MDiis/i  dollar. — In  addition  to  the  varieties  of  currencj'"  just 
mentioned,  the  Spanish  dollar  is  also  very  commonly  used,  its  value 
compared  with  that  of  the  Mexican  dollar  being  as  10  to  8,  that  is,  8 
Spanish  dollars  are  equal  to  10  Mexicans.  The  Spanish  dollar  exchanges 
here  forfi'om  1,200  to  1,300  cash.  Going  north  from  Nankin  into  the 
interior  it  is  difficult  to  use  the  Mexican.  Its  exchange  value  falls  as 
low  as  900  cash,  but  the  Spanish  dollar  is  in  demand  in  these  districts. 

5.  II<in<i  Yin. — A  v^ariety  of  silver  used  here,  though  for  certain 
special  purposes  only,  is  the  ''Hang  Yin." 

This  too,  however,  is  simply  a  method  of  reckoning,     A  tael  of  the 
''Hang  Yin"  is  l)ut  700  cash.     Its  use  seems  confined  to  the  payment 
of  marriage  and  funeral  directors  and  yamen  runners. 
NoTK  9.  -Dr.  D.  J.  Macgowan  (18)  states: 

Ts'ao-p'ing  tael  is  used  in  markets  and  all  ordinary  transactions. 


"These  are  Aimamite.— II.  B.  M. 


GOLD    STANDAED    IN    TNTEKNATIONAL   TRADK„  263 

K'li-p'ino-  tacl  is  used  in  payino-  taxes. 

lLsian<;-p'iiio-  tael  is  used  in  payin<^"  \ olunteers — called  hsiang,  because 
Ilupeh  furnishes  the  greater  ])()fti<)n  of  ('hina's  exteni[)orizcd  forces. 

Chiano-pMno-  tael  is  used  in  dealings  with  Xinopo  nierciiants. 

Kuei-pMnji'  tael  (Kuei  =  usage)  used  in  the  Shanghai  trade;  the 
""usage"  consists  in  discounting  98  taels  =  100. 

llsiang-p'ing  tael  (Ilsiang  — rations)  is  used  to  pay  regular  troops. 

Note  10. — Mr.  E.  11.  Parker  {'•21)  states,  respecting  Foochow: 

The  Hsin-i-pMng  tael  is  worth  2.4  per  cent  and  the  Hsiang-p'ing  tael 
3.3  per  cent  less  than  the  K'u-p'ing  tael.  The  K'u-p'ing  tael  being  a 
definite  weight  in  avoirdupois,  anyone  can  calculate  for  himself  the 
weight  of  the  others.  The  Hsiang-p'ing  was  introduced  during  the 
rebellion,  and  is  only  used  for  paying  the  soldiers.  For  sales  of  land 
only  an  imaginary  tael  called  Wen-kwang  is  used,  and  is  always 
worth  (S(H»  large  cash;  this  is  to  guard  against  variations  in  the  silver 
market,  and  has  no  other  practical  exchange  significance. 

Note  13. — Rev.  C.  Bone  (19)  states,  respecting  Hsin-hui: 

1  have  not  been  able  to  ascertain  that  there  are  any  special  names 
for  the  different  taels,  except  the  perfect  tael,  which  is  called  Ch'u  sze 
ma.  This  is  the  ancient  tael  and  the  ideal.  In  business,  Mexican 
dollars  are  used,  or  broken  dollars,  and  the  "touch""  of  the  silver 
will,  of  course,  depend  on  the  touch  of  the  original  dollars.  There 
are,  however,  three  kinds  of  tael  in  general  use,  and  called  after  the 
business  people  among  whom  they  obtain: 

(a)  In  banks,  warehouses,  and  retail  shops  in  which  corn,  oil,  and 
rice  are  sold  the  tael  is  reckoned  at  997  instead  of  1,000.  (h)  The 
tobacconist's  tael  is  998  instead  of  1,000.  (a)  In  purchase  of  land  or 
houses  the  perfect  tael  is  used,  which  is  1,000  or  even  slightly  over. 
About  10  taels  (sometimes  a  little  more,  sometimes  a  little  less)  must 
be  added  to  100  local  taels  to  make  them  equal  to  the  Government  or 
ideal  tael. 

Note  18. — Regarding  Shensi  and  Kansu,  Rev.  C.  F.  Hogg  states: 

From  experience  in  several  provinces,  I  should  say  that  the  local 
tael  averages  1,500  cash  in  value  all  the  year  round.  In  Han  Chung- 
it  has  sunk  to  one  thousand  one  hundred  odd,  and  risen  to  close  on 
1,900.  The  demand  for  cash  at  the  New  Year  increases  its  value.  In 
Han  Chung  and  Si-ngan  the  price  of  silver  is  usually  between  1,500 
and  1,600  cash.  In  Lanchou  from  1,450  to  1,550.  Rain,  examinations, 
and  the  opium  season  increase  the  demand  for  cash  and  so  raise  its  price. 

Paper  Money. 

Cash  notes  are  common  in  many  parts  of  the  Empire,  and  are  exten- 
sively used  from  their  convenience.  See  especially  the  memorials  of 
the  governor  of  Kirin  given  in  the  North-China  Herald,  Vol.  XLII, 
page  175,  and  Vol.  XLIII,  page  50.  Silver  notes,  except  those  of  the 
foreign  banks,  are  not  used  at  all.  The  remarks  of  the  various  cou- 
tril)utors  on  this  subject  are  abstracted  as  follows: 

SJiemj-hing. — Niuchwang.     Mr.  W.  B.  Russell  (29)  states: 

Cash  notes  are  in  circulation  to  the  amount  of  about  8,000,000  tiaos 
or  300,000  taels.  The  reason  why  they  are  so  cheerfully  accepted  in 
the  market  is  because  they  are  convenient  to  be  carried  and  no  exchange 
of  debased  cash  is  to  be  made. 

No  bank  notes  or  checks  are  used  locally. 


264  GOLD    STANDARD    IN    INTERNATIONAL   TRADE. 

Shensi — Kansu.—^^y.  C.  P.  Hogg-  (22)  states: 

In  Si-ngan,  paper  notes,  value  1,000  (i.  e.  500)  and  2,000  (i.  e.  1,000) 
cash,  are  issued  and  largely  used.  8purious  notes  are  afloat  in  quanti- 
ties, so  that  neighboring  money  shops  are  usually  appealed  to  before 
the  notes  change  hands.  In  Lanchou,  paper  notes  equivalent  to  1,000 
cash  (actual  value)  are  largelv  used  also. 

In  Han  Chung,  oil-cloth  notes  are  used  -value  1,000  cash.  Different 
hsiens  and  large  towns  in  this  and  other  fus  also  issue  notes.  The 
Han  Chung  fu  notes  present  quite  a  credita))le  appearance,  are  stout, 
of  a  yellowish  brown  color,  and  are  oiled  after  signature,  or  rather 
after  value  and  cipher  have  been  inserted;  these  appear  to  be  the 
equivalent  of  the  "signature"' in  Chinese  bank  notes.  Banks  some- 
times shut  their  doors,  but  the  notes  of  established  houses  are  readily 
accepted  without  reference.  Silver  drafts  may  be  given  in  payment 
for  goods.  They  are  always  pa3'al)le  to  bearer,  notwithstanding  that 
there  may  be  no  intimation  of  the  fact  in  the  document  itself,  and  that 
the  payee's  name  may  be  inserted  in  full.  A  special  clause  has  been 
added  at  times  by  some  of  the  Hankow  bankers  in  drafts  made  pay- 
able to  foreigners.  Ch'u  wen  yin  is  interpreted  relatively,  the  stand- 
ard being  the  Ch'ai  se  yin  of  the  place  on  which  the  draft  is  drawn. 

Klang^u,  Nanl'ing. — Rev.  E.  T.  Williams  (IT)  states: 

The  use  of  paper  money  is  verv  common  in  Nanking,  especially  of 
the  800,  100,  500,  and  1,000  cash  notes,  called  ''p'iao-tsz."  These  are 
very  well  engraved  and  printed  on  good,  strong  paper  in  red  and  blue 
inks.  A  note  of  ordinar}'  size  is  7i  inches  long  and  1^  inches  wide. 
The  design  consists  of  a  border,  usually  made  up  (largely)  of  human 
figures.  One  before  me,  as  I  write,  has  a  border  composed  of  charac- 
ters and  scenes  from  some  ancient  drama.  Within  this  is  a  second 
border,  consisting  of  an  extract  from  the  classics  in  very  small  type. 
Inclosed  bv  these  borders  is  an  ol)long  space  containing  the  name  of 
the  bank,  its  location,  the  value  of  the  note,  its  numl)er  and  date,  and 
the  mark  or  st^de  of  the  bank.  Before  being  put  in  circulation  the 
note  must  also  bear  the  great  seal  of  the  bank  upon  its  face.  Each 
person,  too,  as  the  note  passes  through  his  hands,  adds  his  private 
mark,  so  that  it  soon  becomes  defaced.  There  are  also  2,000,  5,000, 
and  even  100,000  cash  "  p'iao-tsz,"  but  these  are  not  so  common. 
Notes  for  50,  100,  and  200  cash,  printed  upon  red  paper  and  called 
"t'iao-tsz,"  are  used  at  Ncav  Year,  chiefly  for  presents  to  children 
and  servants.  At  other  times  they  are  rarely  seen.  The  small  foreign 
silver  pieces  are  slowly  taking  the  place  of  these.  Silver  notes  are 
used  in  trade,  but  not  to  any  great  amount.  Their  use  is  almost 
wholly  confined  to  merchants  in  their  dealings  with  one  another. 

Regarding  Ningpo  in  Chekiang,  Dr.  S.  P.  Barchet  (IG)  states: 

Paper  money,  as  a  imiversal  and  unquestioned  tender,  is  unknown 
in  Ningpo,  ])ut  wholesale  dealers  (e.  g.,  fishmongers)  will  give  notes 
payable  ten  da3's  after  issue,  which  are  readily  taken  instead  of  money, 
for  they  can  be  cashed  by  bearer  at  any  time.  Shops  also  issue  cash 
oi-  promissory  notes,  but  these  will  not  be  paid  till  they  fall  due  (usu- 
ally fi-om  ten  to  forty  days).  Cash  notes  issued  by  small  firms  are 
risky  in  proportion  to  the  length  of  time  before  they  fall  due.  The 
greatest  risk  is  incui-red  where  parties  borrow  the  name  and  credit  of 
other  firms,  issuing  cash  notes  in  their  name.  It  often  happens  that 
when  such  cash  notes  fall  due  tlx'v  are  not<>ven  then  paid  in  hard  cash, 
but  in  cash  notes  on  somebody  else  and  again  on  someljody  else  till  the 


GOLD    STANDAKD    IN    INTERNATIONAL    TKADT!.  2()5 

last  holder  linds  liimselt'  the  loser.  It  is  probably  owing  to  such 
experience  that  cash  notes  are  indorsed  or  verified,  and  when  cash 
notes  chanoe  hands  reference  is  made  to  the  original  party  issuing 
them,  to  have  them  again  verified.  Phis  involv(^s  a  great  loss  of  time 
ai\d  maki>s  most  people  prefer  cash.  When  it  is  wished  to  have  the 
amount  paid  into  a  })ank  or  other  Hrm  a  small  deduction  is  made  (fi'om 
T)  to  W  cash  on  the  dollar).  Bank  notes  are  not  used  otherwise  than 
as  checks. 

Fakien,  Foorhmr.— Mr.  E.  H.  Parker  (21)  states: 

Cash  notes  or  ch'ien-p'iao  for  10<),  '200,  800  cash  are  called  p'iao-t'iao; 
for  400,  500,  <)00  they  are  called  hsiao-p'iao.  There  are  no  others  but 
for  thousands,  from  one  to  ten.  called  ta-pSao. 

A  check  is  called  chi-cliMen,  tsz-t'iao.  Bank  notes  range  from  1  tael 
to  2,000  taels,  and  are  called  yin-p'iao. 


[Extracts  from  North-China  HeraM  for  1889.] 

77)  e  cui'i'eney  question  in  Kir  hi — Kxeesshie  issue  ofpapei'  money. 

January  17.^ — The  governor  of  Kirin  states  that  the  currency  S3^stem 
of  the  town  of  Kirin  is  carried  on  on  a  most  pernicious  system,  and  as 
a  remedy  for  the  great  inconvenience  and  sufl'ering  which  it  entails 
upon  the  people  he  suggests  that  a  portion  of  the  subsidy  which  the 
])ro\  ince  receives  yearly  from  Peking  should  in  future  be  remitted  in 
copper  cash.  Cash,  he  states,  is  the  proper  standard  for  the  monetary 
requirements  of  the  people,  and  paper  money  is  only  to  be  resorted  to 
when  it  proves  insufficient.  If  the  latter  could  be  made  to  circulate 
freeh'  and  the  price  of  commodities,  whether  paid  in  cash  or  paper, 
could  be  equalized,  it  would  prove  a  real  convenience  for  the  people, 
to  which  no  objection  could  be  raised,  as  in  the  other  provinces  where 
paper  money  is  used  to  supplement  the  ordinary  currency.  In  Kirin, 
however,  the  case  is  quite  different.  Here  the  notes  no  longer  repre- 
sent a  cash  value,  and  being  inconvertible  have  given  rise  to  abuses 
greater  than  any  ever  resulting  from  the  financial  expedients  of  the 
Sung  dynastv.  The  commercial  transactions  of  the  town  are  all  based 
on  a  gigantic  system  of  credit,  against  which  prohibitions  have  been 
issued  from  time  to  time  without  effect.  The  notes  of  the  system  lay 
in  its  convenience  for  use  in  the  market  where  money  was  required  to 
pass  rapidly  from  hand  to  hand,  and  in  course  of  time  its  use  was  ex- 
tended until  it  assumed  its  present  dimensions  and  afforded  facilities 
to  dishonest  merchants  for  fraudulent  practices  and  overtrading.  The 
notes  were  put  on  the  market  without  any  regard  to  the  capital  pos- 
sessed by  the  establishment  issuing  them,  and  people  seeing  that  they 
could  bu}'  sycee  or  goods  with  mere  paper,  naturally  preferred  to  hide 
away  their  cash,  and  make  gain  without  employing  money  at  all. 
Merchant's  who  came  to  the  city  to  trade,  observing  the  high  price  of 
silver  and  articles  of  commerce,  feared  that  they  would  lose  heavily  on 
any  goods  purchased  there,  and  took  their  cash  to  other  places  where 
they  could  invest  it  better.  The  consequence  was  that  there  is  an 
unusual  scarcity  of  cash  in  Kirin,  and  that  prices  have  gone  up  to  an 
enormous  height.  The  soldiers  and  ofiicials  suffered  moi-e  than  any 
other  part  of  the  population.      By  an  old  legulation  a  part  of  their 


266  GOLD    STANDAED    IN    INTERNATIONAL    TRADE. 

salary  was  paid  out  of  the  local  rcv^enue,  and  to  l)egin  with  was  issued 
at  a  discount  of  2U  per  cent.  The  chief  source  of  revenue  is  a  tax  upon 
distilleries  paid  in  inconvertible  paper,  of  Vvdiich  it  took  considerably 
over  4  tiao  to  make  a  tael,  but  which  was  issued  to  the  officials  and 
soldiers  at  the  rate  of  3  tiao  to  the  tael.  But  this  did  not  represent 
the  total  loss.  The  other  cities  in  the  province  would  not  accept  the 
inconvertible  paper  of  Kirin;  therefore  the  soldier  was  obliged,  if  he 
wished  to  return  home,  to  exchange  his  paper  money  for  silver  at  the 
current  high  market  rates.  When  he  reached  home  he  had  to  convert 
his  silver  into  cash,  and  as  the  price  of  silver  was  lower  than  in  Kirin 
he  again  sustained  a  heavy  loss.  The  country  people  who  brought 
produce  into  town  found  themselves  unable  to  sell  it  unless  they  took 
the  price  in  paper  money,  and  as  this  was  utterly  useless  in  the  country 
they  were  obliged  to  exchange  it  at  a  ruinous  loss  before  returning. 
Vendors  of  firewood,  and  other  poor  creatures  who  had  carried  heavy 
burdens  from  a  long-  distance  into  the  city,  would  often  want  a  few 
cash  to  buj^  food  to  appease  their  hunger,  and  would  find  themselves 
unable  to  obtain  it,  to  such  a  pitch  had  the  abuses  of  the  currency  sys- 
tem attained.  After  a  consultation  with  the  local,  civil,  and  military 
authorities,  memorialist  drew  up  a  set  of  regulations  for  I'educing  the 
price  of  silver,  and  placing  the  copper  and  paper  money  on  a  uniform 
basis,  and  took  steps  to  have  them  enforced  among  the  mercantile  com- 
munit3^  During  a  specified  period,  when  outstanding  notes  were  pre- 
sented for  pajanent,  at  least  20  per  cent  of  the  amount  was  to  be  given 
in  cash,  and  after  the  third  moon  of  next  year,  the  further  issue 
of  inconvertible  paper  was  to  be  entirely  discontinued.  It  is  feared, 
however,  that  in  making  such  a  radical  chang-e,  a  difficult}^  might  at 
first  be  experienced  in  obtaining  cash  to  meet  the  requirements  of  trade. 
Che  late  governor  proposed  to  open  a  local  mint  for  the  coinage  of  cash, 
i)ut  the  difficulty  of  procuring  copper  renders  this  scheme  unsuited  to 
the  exigencies  of  the  case.  Kirin  draws  from  the  board  of  revenue  in 
Peking  quarterly  subsidies  for  defense  purposes,  and  half-yeai"ly  allow- 
ances for  the  maintenance  of  a  drilled  force  in  the  province.  It  is 
suggested  that  of  each  of  these  payments,  10,000  taels  should  be  issued 
in  copper  cash  at  an  exchange  of  3,000  cash  to  the  tael,  and  be  for- 
warded in  carts  to  Kirin  along  with  the  remittances  in  silver.  Or  if 
it  is  thought  better,  the  board  might  direct  one  of  the  provinces  which 
coins  copper  cash  and  has  communication  by  sea  with  Manchuria  to 
forward  a  similar  amount  of  cash  by  steamer  to  Niuchwang,  whence 
it  could  l)e  sent  overland  to  Kirin,  where  it  might  be  used  in  the 
payment  of  salaries  instead  of  a  direct  remittance  from  the  board. — 
Referred  to  the  consideration  of  the  board  of  revenue. — Ibid.,  p.  175. 


The  subject  of  Chinese  currency  demands  not  a  brief  paragraph,  but 
a  comprehensive  essay,  or  rather  a  volume.  Its  chaotic  eccentricities 
would  drive  any  occiderdal  nation  to  madness  in  a  single  generation, 
or  more  probably  such  gigantic  evils  would  speed ily  work  their  own 
cure.  In  speaking  of  the  disregard  of  accuracy  we  have  mentioned  a 
few  of  the  more  prominent  annoyances.  One  hundred  cash  are  not 
100,  and  1,000  cash  arcwiot  1,000,  but  some  other  and  totally  uncertain 
number,  to  be  ascertained  only  by  experience.  In  wide  regions  of  the 
Knipire  1  cash  counts  for  2,  tliat  is,  it  does  so  in  numbers  above  20,  so 


GOLD  STANDARD  IN  INTKKNATTONAL  TRADE.       2(>7 

that  when  ono  hears  that  he  is  to  he  paid  500  cash  he  understands  tliat 
he  will  recei\'e  250  pieces,  less  the  local  al)atenient,  which  perpetually 
shit'ls  in  difl'erent  ])laces.  There  is  a  constant  intermixture  ol'  small 
or  spurious  cash,  leadinj^-  to  inevitable  disputes  between  dealers  in  any 
conuuodity.  At  irregular  intervals  the  local  magistrates  become 
impressed  with  the  evil  of  this  debasement  of  the  currency  and  issue 
stern  pi'oclamations  against  it.  This  gives  the  swarm  of  luiderlings  in 
the  magistrate's  yamen  an  opportunity  to  levy  squeezes  on  all  tlie  casii 
shops  in  the  district  and  to  make  the  transaction  of  all  business  more 
or  less  diiUcult.  Prices  at  once  rise  to  meet  the  temporary  necessity 
for  pure  cash.  As  soon  as  the  paying  ore  in  this  vein  is  exhausted, 
and  it  is  not  worked  to  any  extent,  the  bad  cash  return,  l)ut  prices  do 
not  fall.  Thus  the  irrepressible  law  by  which  the  worse  currency 
drives  out  the  better  is  never  for  an  instant  suspended.  The  condition 
of  the  cash  becomes  worse  and  worse  until,  as  in  some  parts  of  the 
Province  of  Honan,  everyone  goes  to  market  with  two  entirely  distinct 
sets  of  cash,  one  of  which  is  the  ordinar}"  mixture  of  good  with  bad, 
and  the  other  is  composed  exclusively  of  counterfeit  pieces.  Certain 
articles  are  paid  for  with  the  spurious  cash  only.  But  in  regard  to 
other  commodities  this  is  matter  of  special  bargain,  and  accordingly 
there  is  for  these  articles  a  double  market  price.  That  enormous 
losses  must  result  from  such  a  state  of  things  is,  to  any  westerner, 
obvious  at  a  glance,  although  the  Chinese  are  so  accustomed  to  incon- 
veniences of  this  sort  that  they  seem  almost  unconscious  of  their  exist- 
ence, and  the  evils  are  felt  onh^  as  the  pressure  of  the  atmosphere  is 
felt.  Chinese  cash  is  emphaticall}^  ''tilthy  lucre."  It  can  not  be 
handled  without  contamination.  The  strings  of  500  or  1,000  (nominal) 
pieces  are  exceedingly  liable  to  break,  which  involves  great  trouble  in 
recounting  and  retying.  There  is  no  uniformity  of  weight  in  the  cur- 
rent copper  cash,  Imt  all  is  both  bulky  and  heavy.  Cash  to  the  value 
of  a  Mexican  dollar  weigh  not  less  than  8  pounds  avoirdupois.  A  few 
hundred  cash  are  all  that  anyone  can  carry  about  in  the  little  bags  which 
are  suspended  for  this  purpose  from  the  girdle.  If  it  is  desired  to  use 
a  larger  sum  than  a  few  strings  the  transportation  becomes  a  serious 
matter.  The  losses  on  transactions  in  ingots  of  sycee  are  always  great, 
and  the  person  who  uses  them  is  inevitably  cheated,  both  in  buying 
and  in  selling.  If  he  employs  the  bills  of  cash  shops  the  ditEculty  is 
not  greatly  relieved,  since  those  of  one  region  are  either  wholly  uncur- 
rent  in  another  region  not  far  away,  or  will  be  taken  only  at  a  heav}' 
discount,  while  the  person  who  at  last  takes  them  to  be  redeemed  has 
in  prospect  a  certain  battle  with  the  harpies  of  the  shop  by  which  the 
bills  were  issued  as  to  the  quality  of  the  cash  which  is  to  be  paid  for 
them.  Under  these  grave  disabilities  the  wonder  is  that  the  Chinese 
are  able  to  do  any  business  at  all,  and  yet,  as  we  daily  perceive,  they 
are  so  accustomed  to  these  annoyances  that  their  l)urden  appears 
scarceh'  felt,  and  the  onh'  serious  complaint  on  this  score  comes  from 
foreigners. — Ibid.,  p.  411. 


Wont  of  control  (n^er  the  circulating  medium. 

About  sixty  years  ago  a  student  of  Chinese  history  in  Soochow  made 
some  deep  lesearches  into  the  ijuestion  of  the  currenc3\  The  currency 
was  then  becominii*  more  and  more  out  of  the  reach  of  Government 


268       GOLD  STANDARD  IN  INTERNATIONAL  TRADK. 

control.  Foreiofn  trade  was  increasing-.  The  Government  had  for 
nearly  two  centuries  left  silver  to  work  its  own  wa}'  as  money  paid  by 
weight,  and  received  it  in  payment  of  taxes  from  each  arrondissement. 
Only  the  copper  cash  were  issued  by  the  Government.  For  silver 
there  was  no  mint  and  never  had  been  ))ut  once,  and  that  for  a  short 
time,  yet  this  metal  had  grown  to  be  one  of  the  most  important  ele- 
ments in  domestic  as  well  as  foreign  trade.  It  was  the  same  with  paper. 
Paper  notes  representing  money  were  issued  by  private  capitalists  in 
all  large  cities,  and  the  Government  had  no  interest  in  them.  Their 
success  as  a  circulating  representative  of  silver  was  entiiely  at  the  risk 
of  the  native  bank.  Silver  and  paper  both  represented  money  in  all 
the  large  transactions  of  trade.  The  small  market  negotiations  in  cop- 
per cash,  which  belong  to  the  daily  life  of  the  people,  and  which,  while 
as  transactions  they  are  counted  by  millions,  are  always  small  in  bulk, 
were  the  only  trading  operations  of  whicii  the  Government  issued  the 
circulating  medium.  How  strikingly  different  was  this  state  of  things 
from  that  which  exists  in  the  West,  where  gold,  silver,  copper,  nickel, 
and  stamped  paper  are  all  issued  b}^  the  governments  as  money.  Our 
author  knew  nothing  of  this,  of  course,  but  he  was  still  able  to  caet 
his  eye  over  a  wide  range  of  financial  facts.  China  had  had  a  long 
history  of  linancial  experiments  and  a  succession  of  prosperous  and 
disappointing  experiences.  With  the  national  annals  before  him,  each 
dynasty  having  its  special  chapter  on  linance,  it  never  struck  him  that 
China  was,  or  could  be,  deficient  in  financial  knowledge  or  unable  to 
meet  the  new  conditions  of  the  time.  He  attempted  to  show  that  a 
change  in  policy  was  required  in  finance,  and  the  conclusion  he  arrived 
at,  and  which  he  tried  to  prove  by  argument,  was  that  a  Government 
paper  currency  ought  to  be  agaiji  issued  and  the  use  of  silver  prohib- 
ited. The  people  should  attend  to  agriculture  rather  than  to  trade. 
T'his  was  their  proper  occupation,  and  would  lead  them  to  a  spirit  of 
contentment.  The  circulating  medium  of  trade  ought  to  be  in  the 
hands  of  the  prince  as  a  source  of  revenue. 

The  reasons,  he  said,  why  the  monarch  can  not  easily  control  the 
currency  or  derive  revenue  from  it  are  fivefold.  Coppersmiths  melt 
coin  because  they  wi^h  to  use  the  copper  in  making  wash  basins,  tea- 
kettles, and  images  of  the  gods.  This  is  the  first  interference  with  the 
monarch's  authority.  In  addition  to  this,  lead  and  spelter  are  employed 
to  make  spurious  coin  in  the  furnaces  of  law  breakers  aiming  at  a  little 
profit.  This  is  the  second  interference;  and  the  third  is  the  extending 
use  of  foreign  dollars.  (It  is  worthy  of  remark  that  through  the  whole 
of  his  book  the  author,  writing  in  1881,  makes  no  allusion  to  opium; 
yet  it  is  unquestionablethat  the  spread  of  Spanish  dollars  firstand  Ameri- 
can dollars  afterwards  was  very  much  connected  with  the  opium  trade. 
At  the  same  time  he  makes  no  allusion  to  the  silk  or  the  tea  trade. 
His  point  is  simply  that  it  is  a  loss  to  the  Chinese  Government  not  to 
have  the  profit  arising  fi'om  the  control  of  the  currency.  As  to  com- 
mercial questions  he  s(»ems  to  have  no  information,  nor  did  he  seek  any.) 
His  fourth  reason  why  the  (Jovernment  fails  to  derive  benefit  from 
the  circulating  medium  is  that  the  market  price  of  silver  is  entirely  in 
the  hands  of  the  merchants.  He  would  like  the  Government  to  regu- 
late tlio  curi'ency  by  aulhoi-ity — not  knowing  that  it  is  disasti'ous  and 
vain  for  official  authoiity  to  attempt  to  modify  })rices.  China  has 
leai'ned  many  lessons  since  the  day  when  this  authoi-  lived.     The  fifth 


(}()LI)    STANDARD    IN    INTERNATIONAL    TRADE,  2(l',> 

oanso  of  the  focbloneiss  of  the  Govornnieiit  in  roi^urd  to  the  control  of 
the  money  market  is  the  fact  that  bank  notes  and  }>ills  of  exchange  are 
issued  by  private  capitalists. 

Our  author's  advice  to  the  (Tovernmeni  was  to  make  a  law  prohibit- 
ing- the  use  of  silver  in  money  payments  and  at  the  same  time  restore 
the  issue  of  (iovernment  bank  notes  which  IukI  been  so  long-  discon- 
tinued. In  his  opinion  this  was  the  only  polic}'  by  which  the  live  evils 
from  which  the  (jrovernment  suti'ere^d  could  be  eradicated  and  the  coun- 
try made  prosperous.  In  support  of  this  view  he  appeals  to  the  his- 
tory of  money  in  China.  Ancient  statesmen  saw  the  propriety  of 
drawing  a  revenue  of  cereal  products  from  one  locality,  of  textile 
fabrics  from  another,  and  of  coined  money  from  a  third.  The}^  did 
not  see  the  need  of  a  large  is.sue  of  coins,  except  occasionally  when 
floods  and  drought  compelled  the  adoption  of  this  expedient.  Nor  did 
finance  ministers  in  very  early  times  limit  money  to  silver  or  to  copper. 
Pearls  and  jade,  tortoise-shell  and  cowries,  bundles  of  silk  and  grass- 
cloth,  served  as  money  in  China's  ancient  markets.  About  800  B.  C. 
an  old  poem  sa3's:  "A  simple-looking  lad,  you  were  carrying-  cloth  to 
exchange  it  for  silk."  The  official  master  of  the  market,  says  the 
comment,  stamped  the  cloth  for  use  in  barter,  and  it  was  2  inches  in 
width  and  1(1  inches  long.  The  author  adduces  this  as  classical  author- 
ity for  an  issue  of  Government  bank  notes.  But  as  the  poem  mentions 
merely  barter,  and  the  explanatory  remark  is  that  of  an  author  of  200 
A.  D.,  how  can  w^e  know  whether  the  market  officer  stamped  the  cloth 
or  not?  It  may  have  l)6en  a  simple  case  of  barter.  Whatever  is 
meant  it  would  scarcely  be  by  stamping-,  for  this  mode  of  giving 
official  validit}^  was  hardly  in  use  so  early.  Why,  for  example,  do  we 
find  that  the  cash  of  theChMn  dynasty,  220  B.  C,  were  issued  without 
any  inscription  upon  them?  Books  tell  us  that  the  Han  dynasty 
monarchs  were  the  first  to  direct  characters  to  be  inscribed  upon  their 
coins.  This  practice  commenced  about  200  B.  C.  and  wa>^  never  after- 
wards neglected.  He  refers  to  another  example — that  of  painted 
squares  of  white  deer  skin,  which  in  the  reign  of  Han  Wu-tiwere  used 
as  money.  They  were  priced  at  400,000  cash  each,  and  were  presented 
to  the  Emperor  by  the  high  nobility  or  by  his  relatives  at  the  daily 
audiences  or  at  high  festivals,  after  which  they  could  pass  into  circu- 
lation for  the  amount  mentioned.  At  that  time  there  was  also  a  silver 
coinage,  the  silver  l)eing  mixed  with  tin  as  an  alloy,  on  account  of  the 
whiteness  of  that  metal.  This  alloy  of  tin  was  doubtless  intended  to 
prevent  all  attempts  at  melting  the  imperial  coins.  The  melter  could 
only  lose  by  the  act,  and  if  it  was  not  worth  his  while  he  would  not 
place  the  coins  in  his  melting-pot.  This  seems  to  ])e  a  clear  historical 
instance  of  silver  coinage  lasting  for  a  very  short  time.  Neither  the 
silver  coins  of  Han  Wu-ti  nor  the  painted  squares  of  white  deer  skin 
remained  long  in  use;  and  the  high  value  assigned  to  the  deer  skin 
w^ould  suggest  that  it  was  something  like  the  million-pound  bank  note 
of  Sanuiel  Rogers,  which  he  displayed  in  the  chimne3'-piece  of  his 
breakfast  parlor.  It  was  more  an  object  of  admiration  than  of  utility, 
in  an  age  of  luxury  and  gaudy  show.  As  to  the  origin  of  paper  cur- 
rencv  in  China,  we  nuist  look  to  an  age  later  than  the  Han  dynasty." — 
Ibid!,  p.  ill. 


270  GOLD    yXANDAED    IN    INTERNATIONAL    TRADE. 

Ten  reaHoii^  for  a  paper  currency. 

In  the  Ming-  dyna.st}^  about  1600  A.  D.,  when  the  board  of  revenue 
was  desirous  to  return  to  the  use  of  paper  nione}",  the  governor  of  one 
of  the  provinces  stated  in  a  memorial  what  appeared  to  him  to  be  the 
ten  advantages  of  paper  money.  The  first  was  that  it  could  be  manu- 
factured at  the  capital  of  each  province  for  use  in  that  province.  The 
second  was  that  it  could  circulate  widely.  I'hc  third  was  that  it  could 
be  carried  with  ease,  being  light.  The  fourth  Avas  that  it  could  be 
readily  kept  in  concealment.  The  fiftii  was  that  it  was  not  liable  to 
division  like  silver  into  different  grades  of  purity.  The  sixth  was  that 
it  did  not  need  weighing,  as  was  the  case  with  silver,  whenever  it  was 
used  in  a  commercial  transaction.  The  seventh  advantage  was  that 
silversmiths  could  not  clip  it  for  their  own  nefarious  profit.  The 
eighth  was  that  it  was  not  exposed  to  the  peering  gaze  of  the  thief's 
rapacit3^  The  ninth  was  that  if  paper  took  the  place  of  copper,  and 
copper  ceased  to  be  used  for  making  cash,  there  would  be  a  saving  in 
the  cost  of  this  metal  to  the  Government,  or  the  copper  saved  could  be 
used  in  manufacturing  arms  for  the  troops.  The  tenth  advantage 
would  be  that  if  paper  were  used  instead  of  silver,  the  silver  might  be 
stored  up  by  the  Government. 

Our  author  in  citing  these  ten  reasons  for  adopting  a  paper  currenc}'^ 
adds  that  the  last  two  are  defective.  In  adopting  paper  for  the  mer- 
cantile classes  the  copper  coins  would  remain  in  use  to  meet  the  neces- 
sities of  the  common  people.  So  also  silver  should  continue  to  be  used 
in  making  ornamental  articles  and  headgear  of  various  kinds.  It 
would  be  a  mistake  to  shut  it  up  in  the  Government  treasury  and  pre- 
vent its  being  accessible  to  silversmiths.  There  is  a  fallacy  lying 
hidden  in  our  author's  reasoning.  He  thought  that  the  authorit}^  of 
the  Government  was  all  that  was  essential  to  the  successful  establish- 
ment of  a  circulating  medium,  not  reflecting  that  if  paper  were  so 
employed  there  was  need  of  a  corresponding  store  of  gold  or  silver 
in  readiness  to  pay  value  for  the  notes  if  the  people  lost  confidence  in 
them  and  wished  for  their  metallic  equivalent.  It  did  not  strike  him 
that  the  financial  credit  of  the  Government  bank  can  be  sustained  only 
by  payment  in  gold  or  silver  to  discontented  holders  of  paper.  He 
thought  only  of  supplying  the  demand  for  ornaments  and  not  of  a  run  on 
the  treasury.  In  fact,  China  is  too  large  a  country  and  the  merchants 
as  a  body  too  powerful  by  their  numbers  for  the  Government  to 
attempt  successfully  the  prohibition  of  silver,  nor  <'an  it  refuse  to  allow 
the  issue  of  paper  money  by  private  banks.  The  difficulty  in  estab- 
lishing a  national  bank  is  found  in  the  fact  that  the  Government  can 
not  take  l)etter  care  of  the  interests  of  the  mercantile  classes  than  each 
private  capitalist  can  do  for  himself ,  and  in  the  difierence  which  exists 
in  the  commercial  conditions  of  the  various  provinces. 

In  the  ten  reasons  for  adopting  a  paper  currency,  when  it  is  sug- 
gested that  each  treasurer  of  a  province  should  issue  bank  notes,  it 
may  well  be  asked,  wl»y  not  leave  native  banks  in  possession  of  this 
privilege,  which  is  not  only  a  benefit  to  theuselves  but  to  trade  gener- 
ally':? It  is  certainly  a  great  advantage  to  travelers  that  through  the 
wide  business  (connections  of  the  Chinese  bankers,  bills  of  exchange 
may  be  bought  in  Shanghai  and  cashed  in  any  of  the  provincial  capitals 
of  the  empire.  Both  to  native  and  foreign(>r  this  is  an  unquestioned 
benefit,  and  renders  traveling  tenfold  easier  than  if  the  silver  had  to 


GOLD    bTANDAKD    IN    INTEUNATIONAL    TKABE.  271 

be  carried  in  tiie  traveler's  tnink.s.  In  the  lifth  and  sixth  reasons 
allej>ed  for  (Joverninent  paper  currency  the  Chinese  writer  touches 
upon  two  })atent  aiul  unanswerable  ol)jections  to  the  i)resent  system. 
The  silver  is  w(Mt;hed  at  each  transaction,  and  it  is  circulated  in  vary- 
ing states  of  purity.  The  scales  at  which  silver  is  weighed  differ  in 
each  locality  and  the  traveler  feels  himself  outwitted.  His  money 
becomes  less  at  each  new  point  in  his  journey,  and  a  general  feeling  of 
dissatisfaction  with  the  currency  grows  upon  him  on  his  return;  how- 
ever, he  would  naturally  become  more  reconciled  to  the  t3'ranny  of 
the  scales  had  he  silver  left  to  weigh,  for  when  ho  arrived  again  at 
places  of  large  trade,  his  sycee  weighs  as  much  in  proportion  to  bulk 
as  before.  The  scale  differs  to  allow  the  money  changers  in  towns  of 
small  trade  to  pay  their  expenses,  and  when  this  is  understood  the 
indignation  of  the  traveler  sinks  somewhat.  But  there  is  a  worse 
troul)le  than  the  variation  in  scales.  It  is  the  variations  in  the  purity 
of  the  silver.  It  becomes  alloyed  in  many  ways  and  is  reduced  to 
purity  only  by  re-melting.  Blacksmiths  melt  the  silver,  and  in  all 
places  of  large  trade  there  are  assaying  offices  which  certify  the  purity 
of  silver  for  a  small  sum.  Silver  sent  to  Peking  to  represent  taxes 
has  cut  into  it  by  the  treasurer  of  the  province,  the  name  of  the  arron- 
dissement  from  which  it  comes,  and  of  the  blacksmith  who  melted  it. 
Only  silver  of  first  purity  is  allowed  to  be  sent  to  Peking.  In  this  wa}'^ 
the  Government  indirectly  aids  in  rendering  the  silver  which  is  in  cir- 
culation as  money  much  more  pure  than  it  would  otherwise  be,  but  the 
introduction  of  new  silver  into  the  money  market  is  the  work  of 
merchants  alone.  Also  the  law  does  in  a  direct  way  by  statute  under- 
take to  protect  silver  from  the  incessant  efforts  of  the  unprincipled, 
who  for  private  profit  in  everj^  possible  way  try  to  diminish  its  purity. 
But  it  is  so  hard  to  discover  the  evil-doer  that  statutes  are  promulgated 
in  vain  and  the  owner  of  the  metal  is  in  fact  only  protected  b\^  the 
shroff'  and  the  assaying  office.  When  it  is  considered  how  mucb  impure 
silver  is  in  circulation  there  does  seem  strong  reasons  for  a  silver  coin- 
age. This  would  at  once  improve  the  standard  and  raise  the  average 
of  purity.  To  reject  the  precious  metals  as  currency  because  their 
purit}^  is  tampered  with,  in  favor  of  paper,  would  be  a  mistake.  The 
cure  for  the  evil  is  to  maintain  the  efficiency  of  the  statutes  which  aim 
at  the  punishment  of  crimes  against  the  currency.  Mexican  dollars 
are  now  much  more  uniform  in  value  than  sycee  silver,  and  the  con- 
venience of  a  coin  is  so  great  that  it  is  remarkable  that  the  Chinese 
Government  does  not  follow  Japanese  example  and  establish  a  mint. — 
Ibid.,  p.  203. 


The  histonj  of  paper  currency. 

The  first  attempt  at  paper  currency  in  China  of  which  any  record 
remains  w^as  in  806  A.  I).,  when  bills  of  exchange  were  called  "flying 
mone3^"  Merchants  in  the  capital  could  by  an  ordinance  then  first 
made  receive  Government  bills  in  return  for  the  merchant's  copper 
monej'.  On  arrival  at  any  provincial  capital  they  could  receive  from 
the  provincial  treasurer  the  an)ount  stated  on  the  bill.  There  was  a 
return  to  this  system,  whicii  was  a  sort  of  banking  facility  offered  to 
the  merchants  by  the  Government,  about  the  year  960  A.  D.     A  bureau 


272       GOLD  STANDARD  IN  INTEKNATIONAL  TRADK. 

was  instituted  in  Kai-feng--fu,  then  the  capital,  for  the  transaction  of 
this  business. 

In  1023  Szechuen  was  suffering  from  the  iron  cash  coinage  which 
the  Government  from  scarcity  of  copper  was  forcing  on  the  people 
there.  The  paper  notes  then  put  in  circulation  at  Cheng-tu  by  the 
Government  were  meant  as  a  relief.  They  were  to  be  returned  once 
in  three  years.  The  idea  sprang  up  among  the  rich  merchants  and  was 
accepted  by  the  Government,  and  the  merchants  conducted  the  busi- 
ness. The  limit  of  capital  represented  by  the  notes  was  1,255,300 
strings,  a  string  being  1,000  copper  cash.  In  1150  A.  D.  the  Golden 
Tartars  had  just  conquered  north  China,  and  about  this  time  they 
adopted  a  currency  in  paper,  because  they  found  copper  scarce.  Cop- 
per, silver,  and  gold  have  always  been  chiefly  found  in  south  China. 
A  north  China  kingdom  finds  it  convenient  to  use  paper  so  far  as  pos- 
sible, to  prevent  its  being  dependent  on  a  southern  neighbor.  From 
this  time  forward,  during  a  century  of  the  Golden  Tartars  and  another 
centur\^  of  the  Mongol  domination,  strenuous  efll^'orts  were  made  to 
maintain  a  paper  currency.  Colonel  Yule,  Doctor  Bushell,  and  others 
have  pi'inted  facsimiles  of  the  notes  of  these  periods,  Tliey  are  found, 
for  example,  in  Yule's  Marco  Polo  and  in  the  Journal  of  the  Peking 
Oriental  Societ}"  published  this  year.  All  the  efl'orts  of  the  Govern- 
ment did  not  secure  the  credit  of  the  notes  at  par.  On  the  contrar}^ 
they  became  depreciated  to  an  extreme  degree.  This,  however,  did 
not  prevent  the  Government  of  the  Ming  dynasty,  which  acquired  the 
sovereignty  in  1368  A.  D.,  from  continuing  for  a  time  paper  currency, 
which  was  finally  abandoned  as  silver  flowed  into  the  country  throuo-h 
the  foreign  trade  which  brought  to  the  southern  ports  a  portion  of  the 
products  t)f  Mexican  and  Peruvian  mines.  It  was  American  silver 
that  gave  the  death  blow  to  paper  currency  in  China.  The  arrival  of 
sufficient  silver  was  the  real  relief  which  Chinese  trade  required. 
Notes  were  finallv  alwlished  about  1620  A.  D.  Thus-  the  conquest 
made  by  silver  over  paper  occupied  about  a  century  or  a  little  more, 
from  the  commencement  of  the  trade  of  the  Spaniards  and  Portuguese 
with  Canton. —Ibid.,  p.  292. 


Silver  in  China. 

The  silver  used  in  China  as  a  circulating  medium  in  her  commerce 
has  been  increasing,  in  quantity  especially,  for  four  hundred  years,  and 
most  rapidly  of  all  during  the  present  century.  Each  industi-ious 
(Chinaman  represents  sonuich  weahli  by  his  labor — that  is,  so  uuich  sil- 
ver, for  silver  has  now  for  several  centuries  been  the  standard  of  money 
value  in  this  country.  The  increase  of  population  means  an  increase 
of  wealth  wherever  there  is  scope  for  industry;  and  in  localities  where 
opportunity  is  wanting,  it  leads  to  emigration.  At  the  beginningof  the 
Ming  dynasty,  in  the  latter  half  of  the  fourteenth  century,  the  public; 
currency  had  fallen  into  a  most  unsatisfactory  state  through  the  Gov- 
ernment not  l)eing  able  to  maintain  the  credit  of  the  paper  notes  then 
used.  Yunnan  was  con(|uered,ajid  it  contain(Hl  many  silver  mines,  and 
these  were  worked  to  increase  the  (juantity  of  silver  then  i-apidly 
coming  into  use  as  a  medium  of  exchange.  We  are  told  that  in  15T8 
the  (iovermnent  received  from  Yunnan  13,764  taels  in  paper  money, 
{M4  piculs  of  grain,  and  5,76!)  strings  of  shells.  Two  hundred  years 
later  the  amount   received  in  hemp,  cloth,  and  silver  amounted  to 


GOLD    STANDARD    TN    INTERNATIONAL    TRADE.  278 

14:,S01  taols  of  this  lust  metal.  Tlio  striiig-s  of  shells  used  as  money  had 
disappeared.  The  euml)er.some<>Tain  tribute  in  heavy  bag's  had  become 
changed  for  silver.  But  hemp  and  cloth  were  still  received  l)y  the  Gov- 
ernment tax  collector  because  they  could  be  exchanged  for  silver,  and 
the  cxpiMise  of  convej'ance  of  these  articles  was  not  very  great.  Yet 
after  a- few  more  decades  this  mode  of  paying  taxes  will  again  ])c 
exchanged  for  silver,  which  in  a  country  like  China  has  proved  to  be 
the  most  economical  form  of  tribute.  The  Government  in  these  cir- 
cumstances began  to  prize  silver  very  highly.  It  keeps  its  value  as  an 
article  in  great  recjuest  for  ornamental  work.  It  is  cheaper  to  convey 
than  other  kinds  of  tritnite.  It  is  acceptable  in  trade,  and  the  mer- 
chant is  far  more  willing  to  part  with  his  goods  for  silver  than  for 
paper  mone3^  Hence  the  Government  made  efforts  to  obtain  more  of 
it.  They  set  criminals  to  work  in  the  mines  of  Yunnan.  This  was  in 
1460;  and  they  do  not  seem  to  have  allowed  Chinese  employers  of  labor 
to  manage  mining  operations.  They  considered  it  good  policy  to  keep 
the  mines  in  their  own  hands,  and  they  ordered  the  high  officers  to 
report  fully  on  any  failure  in  the  working  or  diminution  in  the  }' ield  of 
metal.  Then  in  l-KiS  the  works  were  suddenly  ordered  to  l)e  stopped, 
probably  because  of  earthquakes,  for  a  few  years  later,  in  1511,  the 
governor  of  Yunnan  sent  up  a  memorial  advising  that  all  the  mines 
should  be  stopped,  on  account  of  fresh  earthquakes;  Ijut  they  were 
opened  again  in  1514,  notwithstanding  other  objections  which  were 
pressed  at  the  time,  such  as  the  gathering  of  a  rough-spirited  popula- 
tion at  the  mines,  and  the  neglect  of  agriculture  in  the  province,  lead- 
ing to  want  of  food  to  supply  the  needs  of  immigrants.  At  this  very 
time  American  silver  began  to  enter  the  country  through  foreign 
trade  at  Canton  and  Amoy.  More  silver  was  thus  introduced  and  a 
real  need  supplied,  for  it  enabled  Government  to  abandon  both  the 
shell  currency  in  the  southwest  and  the  paper  currenc}^  everywhere, 
and  the  merchants  were  very  glad  to  see  the  last  of  the  Governments, 
(sic)  and  to  have  in  their  place  this  shining  metal.  Silver  was  now 
wanted  by  everyone,  to  keep  in  store  or  use  in  l)uying  as  he  pleased. 
The  value  of  silver  in  copper  cash  has  gone  through  great  vicissi- 
tudes. It  has  been  three  thousand,  and  it  has  been  one  thousand  per 
tael.  In  K396  A.  D.,  a  tael  of  silver  was  worth  1,750  cash,  and  it  is 
now,  1$89  A.  D.,  worth  1,880  in  the  Shanghai  market.  In  the  I'eign 
of  Yung  Cheng,  about  1730  A.  D.,  36  taels  of  silver  were  paid  for  a 
month's  maintenance  to  21  workmen  at  cash  foundries  in  Yunnan — 
that  is  to  say.  If  ounces  of  silver  would  then  support  an  able-bodied 
woi'kman  for  a  month.  In  1555  the  casting  of  cash  in  Yunnan  was  com- 
menced, on  account  of  copper  being  produced  there  in  abundance.  The 
disuse  of  paper  made  a  new  supply,  both  of  silver  and  of  copper  cash, 
a  necessity,  and  from  that  time  forward  both  metals  have  been  needed; 
and  when  the  growth  of  population  is  remembered  they  must  still  con- 
tinue to  be  re(|uired  in  increasing  (juantity.  Two  centuries  ago  the 
workman  could  live  for  100  cash  a  day.  Now  more  is  required,  because 
prices  have  risen  and  every  one  who  carries  on  hisshoulder  his  baskets 
of  market  produce  from  his  little  farm  to  the  adjoining  local  center  of 
merchandise  expects  more  money  for  it  than  did  his  grandfather  did. 
The  old  currency  needs  to  be  modified  to  meet  the  new  conditions. 
Copper  cash  are  not  enough  for  the  uses  of  common  life.  Silver  is 
required  to  do  what  the  cash,  through  gradual  sinking  in  value  can  not 

S.  Doc.  128,  58-3 18 


274  GOLD    STANDARD    IN    INTEIiNATIONAL    TRADE. 

do.  Two  hundred  cash  are  wanted  to  buy  that  amount  of  food  and 
clothing-  for  which  in  former  times  100  would  have  been  enough — that 
is  to  say,  the  man  who  goes  to  market  to  buy  must  carr}^  with  him 
twice  as  nmch  weight  in  copper  as  his  great-grandfather  did.  It  is 
more  convenient  in  these  circumstances  to  have  small  silver  coins,  and 
this  is  our  convenience  in  the  West,  or  small  notes  issued  by  native 
banks  and  properly  stamped  and  inscribed  may  be  used,  as  they  still 
are  in  Peking. 

Yet  small  silver  coins  could  not  now  in  China  take  the  place  of  cop- 
per cash.  Copper  must  continue  to  rank  in  China  as  the  most  widely 
useful  of  all  currencies,  because  of  the  disproportion  in  the  expense  of 
living-  in  large  cities  and  in  country  districts,  and  the  wide  ditferences 
in  climate  existing  between  the  north  and  the  south  and  between  moun- 
tain and  plain  in  so  large  a  country  as  China.  That  coin  is  most 
adapted  to  China  which  has  the  most  minute  divisibility.  A  dollar 
which  is  now  woi-th  8s.  3d.  is  divisible  into  a  thousand  separate  coins 
composed  of  a  mixture  of  copper  and  zinc.  It  suits  the  prices  of  mar- 
ketable articles  and  the  incomes  of  the  people  to  retain  this  subdivison 
in  current  coins.  Even  silver  is  circulated  in  very  small  lumps  as  well 
as  in  large  ones,  and  the  small  hand  steelyard  used  in  weighing  it  is 
subdivided  into  hundredths  of  an  ounce.  Such  a  steelyard  is  part  of 
the  kit  of  every  traveler,  as  a  check  on  the  weighing  of  the  mone}^- 
shops. — Ibid.,  p.  534. 

Coj>per  cash. 

The  older  books  written  by  Chinese  archeologists  on  the  history  of 
cash  contain  at  the  beginning  examples  of  money  professing  to  come 
down  from  the  primitive  ages.  Some  of  them  belong  to  Fuhi  and 
others  to  Shennung.  The  foreign  collector  of  cash  ought  to  know  if 
he  has  such  coins  in  his  cabinet  that  this  immense  antiquity  is  given  to 
them  by  medieval  mythmakers.  The  best  modern  numismatists  do 
not  recognize  such  a  claim.  Yet  they  appear  in  a  book  of  so  much 
authority  as  Hsi  Ch'ing  Ku  Chien,  compiled  by  an  imperial  commis- 
sion and  published  1749  A.  D.  Seven  hundred  years  iigo,  when  the 
capital  was  at  Hangchow,  the  first  complete  book  on  Ciiinese  coins  was 
published.  Since  that  time  archeologists  have  been  numerous,  and  a 
persistent  effort  has  been  made  to  collect  newly-found  coins.  Builders 
of  houses  and  walls,  countrymen  at  work  in  the  fields,  restorers  of 
bridges,  and  diggers  of  canals  in  any  part  of  China  from  time  to  time 
meet  with  old  cash  which  are  added  to  the  current  coins  in  circulation 
or  are  sold  or  presented  to  local  numismatists.  There  never  has  been 
a  law  against  the  use  of  old  cash  mixed  with  the  new,  nor  has  there 
been  any  official  effort  made  to  collect  them,  and  in  c(>nse((uenceit  is  an 
ever\'  day  occurrence  to  meet  with  coins  made  a  thousand  years  ago. 
The  traveler  in  China  does  not  know,  uidess  he  examines  carefully, 
how  many  relics  of  distant  centuries  constantly  pass  through  his  hands 
or  thi-()ugh  those  of  his  *••  faithful  Achates."'"' 

Th(>-  chief  interest  attaches  to  coins  of  a  tim(>  iinti^-ior  to  the  book- 
bui-ning  211  B.  C.  That  was  the  jx'i'iod  when  lit(M-atui-<^  and  the  arts 
and  sciences  took  a  mighty  spring  upward.  It  was  the  time  when 
great  books  wei'e  written,  d(\stined  to  be  ever  after  ])reser\'ed  by  a 
grateful  nation  as  those  i)i-ecious  heirlooms  whi('h  a  mad  concpuM-or  in 
his  ernnitv  against  tiie  sages  failed  to  destrov.     The  coins  of  that  time 


HOLD  STANDARD    IN    INTEKNATIONAL    TRADE.  275 

arc  indicators  of  progress  in  conimerco  and  the  arts  in  various  localities 
of  northern  China.  We  may  consider  it  as  proved  that  bronze  castings 
and  the  manufacture  of  iron  implements,  as  well  as  goldsmiths'"  and  silver- 
smiths' work,  were  well  advanced  long  before  Confucius.  The  history 
known  as  Kwo  yi'i  shows  that  this  was  the  case  in  regard  to  work  in 
bronze.  But  cash  were  cast  Ijcfore  524  B.  C,  for  it  is  recorded  in  that 
year  that  larger  coins  than  had  been  before  made  were  then  cast  in 
Honan.  on  the  banksof  the  Yellow,  River  by  order  of  the  Chow  emperor. 
From  the  collections  of  the  numismatists  it  appears  that  a  square  hole 
in  the  middle  and  a  legend  of  two  characters  were  in  use  as  early  as 
this  in  Chinese  coins.  Hwo  was  the  word  for  "  mone}',"  meaning  that 
wdiich  is  changed  (hua)  for  something  else.  Pao,  "  valuable,"  was 
prefixed  to  it.  But  coins  must  have  existed  before  this,  and  in  the 
Han  dynasty  it  was  fully  believed  that  KiangTai-kung,  the  chief  min- 
ister of  Wen  Wang  in  the  twelfth  century  before  our  era,  introduced 
them  in  Shensi  wdien  in  office  and  afterwards  in  Shantung  when  he 
retired  to  his  principality.  His  special  repute  is  for  advancing  com- 
merce, and  it  was  under  his  fostering  care  that  the  salt  trade  of  north- 
ern Shantung  came  to  exercise  a  decided  influence  on  the  development 
of  internal  commerce  in  ancient  China.  The  history  of  Pankoo 
ascribes  to  Kiang  Tai-kung  the  origin  of  round  coins  as  distinguished 
from  knives  and  pieces  of  cloth.  We  may  adopt  this  view  and  may 
connect  it  with  improvements  in  metallurgy  and  new  acquisitions  of 
foreign  knowledge  at  the  l)eginning  of  the  Chou  dynast}".  If  Kiang 
Tai-kung  is  rightly  credited  with  the  origination  of  round  cash,  the 
period  of  that  improvement  is  then  fixed  to  the  twelfth  century  before 
our  era.  Yet  it  may  be  that  he  is  credited  with  it  because  he  promoted 
trade  and  was  possessed  of  political  sagacity  shown  in  other  useful 
measures.  If  at  any  time  between  the  eleventh  and  fifth  centuries 
before  our  era  the  coins  called  cash  were  introduced  by  any  statesman 
in  northern  Shantung,  whose  name  did  not  shine  out  with  luster  in 
history,  it  was  very  likely  that  the  improvement  would  be  attributed 
to  Kiang  Tai-kung.  It  would  be  ])y  a  suggestion  from  the  strings  of 
seashells  then  used  as  money  that  the  idea  of  a  hole  for  stringing  the 
new  copper  coins  would  be  most  probably  derived.  Further  it  would 
be  before  the  time  of  Kwan  Chung,  the  great  administrative  statesman 
of  the  seventh  century,  for  in  the  book  purporting  to  be  written  by 
Kwan  Chung,  there  are  several  references  to  the  coining  of  cash,  but 
the  compiler  does  not  attribute  the  invention  to  Kwan  Chung  himself. 
Perhaps  in  these  circumstances  it  may  be  best  to  assign  the  first  round 
metal  coinage  to  about  the  ninth  century,  the  age  of  Siuen  Wang, 
when  the  country  was  prosperous  and  wars  were  conducted  success- 
fulh'.  But  this  may  be  too  late,  and  there  is  really  no  very  strong 
reason  bas(>d  in  the  old  literature  of  China  why  to  Kiang  Tai-kung  the 
honor  of  introducing  a  copper  currency  should  not  be  assigned.  The 
remarkable  old  work  ("howli,  in  describing  the  administration  through 
all  its  departments,  mentions  among  them  a  cash  office  for  the  manu- 
facture and  issue  of  cash.  But  this  book  was  probably  small  at  first, 
and  its  bulk  increased  froni  one  period  to  another,  and  this  particular 
statement  may  have  been  inserted,  we  know  not  when,  by  some 
imknown  official.  W(^  must  wait  for  more  discoveries  from  under- 
ground. The  railway  fiom  Peking  to  Hankow  will  in  Chihli  and 
Honan  proceed  through  a  country  occupied  ])y  a  people  who  for  four 
thousand  years  at  least  have  ploughed  and  sown  the  land,  carried  the 


276       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

produce  to  market,  exchanged  it  for  something  necessary  for  use  or 
ornament,  and  returned  to  their  homes  with  their  new  possessions. 
The  railway  works  may  anywhere  in  that  region,  "rich  with  the  spoils 
of  time,"  yield  interesing  treasures  v/hich  will  throw  light  on  the  past. 
Should  there  be  a  line  made  from  the  city  of  Confucius,  or  from 
Taishan  to  the  north  of  it,  to  Tientsin,  it  would  bisect  the  very  terri- 
tory which  belonged  as  a  feudal  tief  to  the  traditional  founder  of  the 
copper  currency  of  China.  As  about  many  other  ancient  matters,  so 
on  the  question  of  the  origin  of  this  currency,  our  successors  will  know 
with  certainty  what  now  can  not  be  determined. — Ibid.,  p.  745. 

3.  MONEY  SYSTEM  OF  MANCHURIA, 

(a)  Report  from  the  American  Consul  at  Niuchwang. 
[From  Daily  Consular  Reports,  No.  2010,  July  li2,  1804.] 

The  following  pajjer  on  money  in  Manchuria,  prepared  by  Mr. 
Arthur  Henckendorif',  of  the  Husso-Chinese  Bank  at  Niuchwang,  was 
transmitted  by  the  United  States  consul  at  that  place  under  date  of 
May  5,  1904 : 

I  think  it  would  not  be  possible  to  find  a  more  intricate  or  compli- 
cated money  system  than  that  at  present  in  vogue  in  Manchuria. 
This  is  owdng,  I  should  say,  to  the  fact  that  they  have  not  there  a  fixed 
recognized  standard  of  silver  which  can  be  taken  as  a  basis  for 
exchange  operations. 

Although  China's  currency  is  on  a  silver  basis,  yet  there  is  no  stand- 
ard of  silver  common  to  all  their  provinces. 

For  instance,  the  silver  of  Niuchwang  has  a  touch  of  99.2 — or,  in 
other  words,  8  ounces  of  alloy  to  992  ounces  of  pure  silver.  The  touch 
of  the  silver  of  Liaoyang,  Mukden,  Kirin,  and  Tiding  is  supposed 
to  be  the  same  as  that  of  Yingkou,  but  it  never  is,  Yingkou  silver 
usually  being  finer  by  1  or  2  ounces  in  the  thousand.  Kwangchingtsu 
silver  has  a  touch  of  99,  which  puts  it  below  Yingkou  silver,  while, 
on  the  other  hand,  Harbin  silver  has  a  touch  of  99.8,  wdiich  puts  it 
above  that  of  Niuchw\ang.  When  we  think  that  the  touch  is  only  one 
of  the  items  which  has  to  be  taken  into  consideration  in  the  everyday 
exchange  operations  wdiich  take  place  betAveen  the  various  Manchu- 
rian  tow^is,  we  can  understand  that  the  negotiating  of  a  rate  between 
Chinese  currency  is  not  a  simple  matter.  This  constant  practice  in 
exchange  of  the  Chinese  banker  accounts,  I  should  say,  for  much  of 
his  quickness  of  perception. 

The  hard-(-oin  currency  in  Manchuria  consists  of  the  sycee,  small 
coin,  and,  of  late,  the  i"uble;  yet  the  bulk  of  the  merchandise  bought 
and  sold  is  not  bought  or  sold  against  these  hard  effectives.  All  prices 
aiul  rates  quoted  are  against  transfer  money  or  mo-lu  yingtzu — in 
other  words,  goods  money,  or  huo  yingtzu.  This  transfer  or  mo-lu 
yingtzu  is  a  i)eculiar  and  nuuldled  system.  The  arrival  of  the  ruble 
and  the  establishment  of  <|uick  communication  with  Manchuria,  thus 
enabling  the  rapid  transi)()rtatioii  of  treasure  to  and  from  Manchuria, 
is  in  lai'ge  |)art  res|)onsible  for  the  nniddling. 

The  transfer  money  is  a  i)in-(>ly  nominal  currency  not  substantiated 
in  any  way  by  an  effective — in  other  words,  it  is  a  credit.  We  will 
say,  for  instance,  that  a  merchant  starts  business  in  Niuchwang  and 


(U)LD    J^rANDAKI)    IN    INTERNATIONAL   TRADE.  277 

that  his  capital  is  ilopositcd  in  some  bank  in  Shanghai.  The  first 
thing  he  Avill  do  will  be  to  sell  his  draft  on  Shanghai  in  the  market 
at  the  market  rate.  The  purchaser  will  transfer  to  the  credit  of  the 
merchant,  at  the  j)lace  where  he  banks,  the  eqnivalent,  in  transfer 
money,  of  his  draft,  and  with  this  credit  he  can  purchase  his  goods  or 
do  his  banking.  'J'his  transfer  money  can  at  any  time  be  sold  for 
silver  or  ruble  ell'ectives. 

The  Chinese  year  has  four  settling  days,  or  mao-kou,  when  all  trans- 
fer money  which  has  been  issued  has  to  be  released.  The  method  of 
redeeming  transfer  money  has  undergone  several  changes  during  the 
last  few  years.  The  first  system  was  that  transfer  money  should  be 
redeemed  at  full  value  in  hard  silver  at  the  end  of  every  three  months. 
This  system  was  contiinied  until  about  two  years  after  the  Japanese 
war.  During  this  period  the  ell'ective  currency  was  sycee  and  copper 
cash,  small  coin  not  having  tlien  made  its  appearance  in  large 
amounts. 

Tiao  notes  were  largely  issued  by  bankers  and  merchants  of  good 
standing.  Silver  at  that  time  was  only  purchasable  with  cash,  not, 
as  now.  with  transfer  money.  All  other  exchange  quotations  between 
Yingkou  and  the  other  provinces  were  in  transfer.  At  this  time  hard 
sycee  Avas  subject  to  a  premium  of  from  50  cents  to  1  tael  per  shoe  of 
taels,  or,  roughly,  about  2  per  cent — that  is  to  say,  53.50  hard  sycee 
taels  were  equivalent  to  54  or  5J:.50  transfer  taels.  On  the  settling- 
day,  when  the  holder  of  transfer  was  paid  full  value  in  sycee — that 
is  to  say,  in  sycee  at  par  with  transfer — he  actually  received  about  2 
per  cent  more  than  the  original  amount;  this  2  per  cent  represented 
the  interest  he  received  on  his  money.  By  this  it  may  be  seen  that 
transfer  money  increased  in  value  as  it  approached  the  settling  day, 
owing  to  the  fact  that  it  Avas  accruing  interest. 

After  the  Japanese  war  the  Chinese  (government  started  to  mint 
dollars  in  the  various  provinces;  this  had  the  eifect  of  raising  the 
price  of  silver  and  causing  a  scarcity  in  the  silver  market,  as  the  Gov- 
ernment Avas  buying  large  quantities.  This  scarcity  of  silver  made 
it  very  inconvenient  to  have  to  settle  up  in  read}^  silver,  as  the  market 
was  often  very  tight,  and  consequently  the  premium  on  silver  w^ould 
go  up  very  high,  thus  causing  a  heavy  loss  to  issuers  of  transfer;  so 
it  was  arranged  that  transfer  upon  falling  due  should  not  be  re- 
deemed at  par  in  silver,  but  should  haA^e  a  premium  added  to  it. 
This  premium  Avas  usually  slightly  smaller  than  the  premium  on 
sycee,  and  represented  the  accrued  interest.  This  system  had  the 
effect  of  somewhat  diminishing  the  demand  for  hard  sycee. 

During  the  Boxer  trouble  the  transfer  issued  Avas  not  settled  uj)  for 
a  period  of  nine  months.  The  next  settling  day  it  Avas  settled  up  by 
the  issuers  of  transfer  paying  $81.50  for  each  shoe  of  transfer,  the 
shoe  then  being  Avorth  about  $79,  the  difference  betAveen  these  amounts 
standing  for  the  interest.  Since  then  settlements  haA'e  been  made 
both  by  paying  small  coin  and  by  paying  a  premium. 

1  mentioned  a  little  Avhile  ago  that  before  the  Japanese  Avar  there 
were  tiao  notes  and  copper  cash  in  currency.  These  gradually  dis- 
appeared after  the  appearance  of  the  small-coin  dollar,  so  that  now^ 
even  in  the  stalls  in  the  streets  you  Avill  hardly  hear  the  A\'ord  tiao 
mentioned,  all  business  being  done  in  small  coin. 

Of  late  the  ruble  has  been  a  A'ery  important  factor  in  the  Man- 
churian  currenc3\     The  ruble  was  brought  into  circulation  by  the 


278  GOLD   STANDARD    IN    INTEKNATIONAL    TRADE. 

Russian  railway  and  the  troops.  The  Chinese  took  to  it  readily.  OAving 
to  the  ease  with  which  it  could  be  carried  backward  and  forward, 
thus  saving  the  expense  of  shipping  specie. 

The  currenc}^  of  Laio^^ang  is  slightly  different  from  that  of  Niu- 
cliAvang.  The  effectives  there  are  the  small  coin,  sycee,  copper  cash, 
and  rubles.  They  have  there  also  a  system  very  much  like  the  trans- 
fer of  Niuchw^ang — that  is,  the  tieh  yingtzu,  or  note  money.  This 
consists  of  tiao  notes  issued  on  demsind  by  bankers  and  merchants  of 
good  standing,  payable  upon  presentation,  not  in  copper  cash,  as 
would  be  expected,  but  in  small  coin,  at  the  rate  of  the  day.  (The 
jjresent  exchange  is  about  11  tiaos  to  the  dollar;  the  tiao  there  is  the 
same  as  the  tiao  here — that  is,  100  cash.)  The  present  rate  is  about  15 
tiaos  to  the  tael.  This  quotation  stands  good  merely  for  transfers  of 
the  tael  and  tiao  against  goods  bought  or  sold ;  if  ready  silver  is  re- 
quired, an  extra  premium  of  about  1  tiao,  more  or  less,  according  to  the 
market  quotation,  must  be  paid.  For  instance,  if  a  person  buys  100 
pieces  of  goods  the  price  of  which  is  1  tael  apiece,  and  the  market  rate 
is  15  tiaos  to  the  tael,  he  would  have  to  pay  1,500  tiaos  for  these  100 
pieces  of  goods;  but  if,  on  the  other  hand,  he  wants  to  buy  100  taels  of 
hard  sycee,  he  wdll  have  to  pay  1,000  tiaos — that  is,  1,500  tiaos  plus  the 
premium  of  1  tiao  (or  whatever  the  market  rate  may  be)  on  each 
tael — thus  making  it  100  tiaos  more. 

The  money  system  of  Moukden  and  Tieling  is  practically  the  same 
as  that  of  Liaoyang. 

The  system  in  Kwangchingtsu  and  Kirin  is  quite  different  again. 
There  they  have  a  system  of  transfer  money  very  much  like  the  sys- 
tem in  Niuchwang.  The  exchange  there  is  chiefly  between  tiaos  and 
silver.  The  tiao  there  is  three  times  the  value  of  the  Yingkou,  Liao- 
yang, and  Tieling  tiao.  It  is  valued  at  480  copper  cash.  But  in 
Kwangchingtsu  and  Kirin  there  is  no  cash  to  speak  of,  nor  are  many 
tiao  notes  issued,  so  that  the  tiao  is  more  or  less  a  nominal  currency 
used  merely  for  business  transfers,  the  actual  settlements  being  made 
in  sycee  according  to  the  rates  quoted  in  the  market. 

The  price  of  rubles  is  quoted  in  tiaos.  The  ruble  has  a  fixed  rate 
of  2  tiaos.  The  diff'erence  in  rise  or  fall  in  exchange  is  made  up  by 
a  premium  on  the  ruble,  which  rises  and  falls  as  the  value  of  the  silver 
increases  or  decreases.  In  Chi-chi-har  and  Harbin  all  business  is 
done  in  hard  effectives,  either  sycee,  rubles,  or  small  coin. 

(?})  The  Defeat  of  the  Traveling  Ruble. 

As  an  instructive  and  illuminating  connnent  on  the  Chinese  system 
are  added  the  following  extracts  from  a  chapter  of  Mr.  B.  L.  Put- 
nam Weale''s  book,  Manchu  and  Muscovite,  under  the  above  title: 

So  by  1901  the  ruble  had  a  very  firm  and  enviable  position  and  bid 
fair  to  become  master  of  the  economical  situation  in  Manchuria.  Tlie 
Chinese  Eastern  Railway,  which  was  being  rebuilt  at  a  truly  phe- 
nomenal rate,  now  jumped  into  the  fray,  and  arbitrarily  and  without 
any  right  to  do  so  decreed  that  henceforth  passenger  tickets  and 
freight  charges  must  be  paid  for  in  ruble  notes  without  distinction. 
Up  till  then,  you  see,  the  Ilarbin  Railway  administration  had  not  felt 
sufficiently  strong  to  tackle  the  Chinese  on  what  is  a  matter  of  life  and 
death  to  everyone  of  them  as  soon  as  they  are  old  enougli  to  walk — 
that  is,  on  the  dollar  (piestion.     But  the  presence  of  lai'ge  bodies  of 


GOLD   STANDARD    IN    INTERNATIONAL    TRADE.  279 

occupation  troops  made  the  Slav  foolishly  confident,  and  caused  hini 
to  counnit  a  first  great  faux-])as,  which  was  to  he  the  ruin  of  the 
ruhle.  Tell  a  Chinaman  he  has  got  to  do  something  that  you  hav'e 
neither  the  organization  nor  the  power  to  make  him  do  and  you  are 
simply  inviting  disaster.  Above  all,  when  it  is  a  question  of  the 
Chinaman's  pocket,  act  most  w  arily  and  be  warned  in  time. 

Here  it  is  necessary  to  explain  that  the  real  currency  of  Manchuria, 
as  in  other  parts  of  China,  is  merely  copper  cash,  not  the  small  copj^er 
cash  of  the  central  and  southern  jjrovinces,  but  the  so-called  large 
cash  of  the  north.  .V.s  these  cash  are  too  small  a  denomination  in 
which  to  conduct  connnei-cial  transactions  of  any  magnitiule,  it  may 
be  said  that  the  "  tiao  "  is  the  unit  of  value  in  the  big  market  places. 
AVhat  is  the  tiao?  The  tiao  is  simply  a  certain  number  of  copper 
cash.  In  north  China,  or  say  the  metropolitan  province  of  Chihli,  it 
IS  100  large  cash;  in  Niuchwang  it  is  160;  in  Moukden  more,  and 
finally  in  Ivirin  several  hundred  cash  go  to  the  tiao,  and,  roughly,  in 
this  last  named  place,  2  tiao  equal  1  provincial  dollar.  But  there  is 
another  point  to  note.  The  tiao  is  an  imaginary  coin ;  in  fact,  it  is  no 
coin  at  all.  It  is  simply  a.  multiple  of  copper  cash  settled  on  long  ago 
in  the  dim  past  and  varying  according  to  the  district  in  which  you 
happen  to  be,  and  is  not  coineil  into  silver  pieces.  To  simplify  mat- 
ters, Chinese  bankers  in  Moukden.  Kirin,  and  in  fact  in  every  mart  of 
importance,  issue  paper  tiao  notes  of  various  denominations,  and  these 
notes  correspond  almost  exactly  to  the  country  bank  notes  of  Euro- 
pean countries. 

These  notes  are,  therefore,  only  negotiable  in  their  districts  of 
issue.  If,  for  instance,  I  have  got  1,000  tiao  in  Moukden  notes,  say 
£20,  and  I  propose  to  go  into  Kirin  city  to  buy  produce,  I  must  first 
cash  my  notes  in  Moukden  and  get  a  Kirin  credit  in  silver  taels;  that 
is,  an  order  on  a  Kirin  bank  to  pay  me  so  many  local  taels'  weight  of 
silver  on  demand.  Arrived  in  Kirin,  I  present  my  draft  and  am  told 
that  my  credit  in  Kirin  tiao  at  the  current  rate  of  the  day  is  so  and  so 
and  so  much. 

Are  you  beginning  to  see  what  a  hornet's  nest  the  Russians  were  dis- 
turbing when  thev  attempted,  unauthorizedly,  to  tamper  with  the 
Chinaman's  birthright,  the  exchange  question  and  the  vast  profits  it 
brings  him  ?     However,  there  is  yet  another  point. 

In  1807,  I  think  it  was,  mints  to  coin  dollars  of  the  same  nominal 
weight  and  fineness  as  the  Mexican  dollars  were  opened  in  Kirin  city 
and  in  Moukden.  Unfortunately  no  figures  are  available  to  show 
what  number  of  coins  were  yearly  placed  on  the  markets,  but  there  is 
some  reason  to  suppose,  although  the  work  was  very  intermittent,  that 
the  totals  ran  into  millions.  More  attenti(m,  however,  was  given  to 
the  minting  of  subsidiary  coins — that  is,  5, 10, 20,  and  50  cent  pi^eces— 
than  to  dollars,  because  adulteration  and  short  weight  are  not  so'easily 
detected  or  so  objected  to  in  minor  coins  as  they  are  in  big  ones,  and 
the  mint  profits  are,  therefore,  more  secure.  These  mints  were  opened 
with  one  object,  that  of  supplj'ing  convenient  tokens  for  the  ever- 
growing minor  trade  and  traffic  between  foreigners  and  Chinese  in 
Manchuria. 

Reviewing  rapidly  what  has  been  written  above,  the  reader  will  see 
at  once  that  the  real  money  of  Manchuria  is  the  larger  co])])er  cash ; 
that  for  connnercial  transactions  the  tiao,  a  certain  multiple  of  copper 
cash,  is  the  value  used ;  that  for  petty  dealings  of  a  semiforeign  char- 


280  GOLD    STANDARD    IN    INTP^RNATIONAL    TRADE. 

acter  minted  dollars  are  locally  employed,  and  that,  finally,  for  set- 
tling adverse  trade  balances,  silver  bullion  or  sycee  is  shipped  from 
one  point  to  another.  The  rul)le  was,  therefore,  in  every  way  an 
interloper,  at  first  tolerated  by  the  Chinese  bankers  because  they  could 
squeeze  a  beloved  exchange  profit  out  of  it,  whether  they  were  buying 
or  selling.  Once,  however,  they  saw  their  entire  monetary  system 
threatened  by  the  arbitrary  decrees  of  Russian  bureaucrats  they  pre- 
pared  for  battle,  and  when  the  dollar-loving  Chinaman  prepares  for 
battle,  look  out  for  squalls. 

During  the  first  part  of  1001  nothing  much  was  noticeable,  but  after 
the  evacuation  protocol  of  April,  1902,  was  signed  in  Peking  ominous 
rumors  became  suddenly  current  in  every  tea  house  and  hong  in  Man- 
churia. The  Russians  were  going,  everybody  said,  and  were  leaving 
their  useless  paper  money  behind  in  millions  of  innocent  Chinese 
hands.  Who  guaranteed  this  paper?  What  was  this  paper,  and  was 
there  no  redress  ? 

These  were  the  questions  that  were  ])eing  freely  asked  and  nervously 
answered,  and  the  Chinese  bankers,  the  conscious  instigators  of  false 
rumors  untraceable  to  anyone,  smiled  quietly  in  their  back  parlors, 
knowing  that  they  would  succeed.  Briefly  put,  the  battle,  although 
just  commenced,  was  already  won.  Distrust  and  suspicion,  those 
twin  fiends  that  conquer  the  strongest,  had  taken  hold  of  the  multi- 
tudes, and  the  game  was  absolutely  in  the  hands  of  1,000  native 
banking  people.  For  although  the  Russian  did  not  probal>ly  in  the 
first  instance  dream  of  forcing  his  paper  money  onto  Manchuria, 
events  so  shaped  themselves  that  he  thought  he  could  use  the  ruble 
as  a  powerful  weapon  of  conquest.  Manchuria  had  a  Russian  rail- 
way; Russian  guards  everywhere;  Russo-Chinese  banks  in  many  im- 
portant towns;  Russian  authorities  controlling  the  seaports;  in  fact, 
it  seemed  like  Russia  herself  to  purblind  employees  who  traveled  up 
and  down  the  empire  of  the  5-foot  track.  Therefore,  why  not  make 
an  end  of  all  pretense  at  once  and  spread  the  famous  paper  money,  of 
Avhich  there  is  apparently  no  end,  stamped  with  the  effigy  of  an  om- 
nipotent Czar,  and  symbolic  of  Russia's  victory  all  over  the  country  ? 

But,  as  I  have  already  said,  it  is  best  not  to  go  too  far  in  a  country 
the  size  of  France  and  Germany  rolled  into  one,  and  Avithal  possessed 
of  a  population  to  whom  money  is  as  the  breath  of  life.  Two  years  or 
even  one  year  ago  tens  of  millions  of  ruble  notes  were  hoarded  in 
every  native  bank  in  Manchuria;  to-day  Avho  will  find  me  1,000,000? 

A  year  ago  the  Harbin  Raihvay  administration  addressed  a  query 
to  St.  Petersburg  as  to  what  should  be  done  with  the  millions  of  silver 
dollars  and  hundreds  of  millions  of  copper  cash  stored  in  the  railway 
city,  and  representing  railway  receipts  during  pi'e-Boxer  days.  The 
answer  })romptly  came:  Shij)  away  the  dollars  and  keep  the  copper 
(tash  pending  further  instructions. 

So  the  dollars  were  duly  sent  away.  One  million  or  so  came  to 
Shanghai,  were  sold  on  the  local  market  only  to  be  promptly  bought 
up  by  native  houses  from  the  north  that  have  Shanghai  branches,  and 
shipped  back  to  Moukden  and  Newchwang  inside  of  a  fortnight. 
Some  of  the  dollars  went  to  Tientsin  and  were  back  within  forty-eight 
hours  in  Manchuria.  The  Russian  was  vainly  attempting  in  a  most 
puerile  fasliion  to  kill  (he  minted  dollar  in  Manchuria;  which,  after 
all,  is  itself  something  of  an  inti'uder  in  (he  countr}^  If  such  small  suc- 
cess attendctl  the  fight  against  a  semi-foreign  coin,  what  were  the 


GOLD    STANDARD    IN    INTERNATIONAL    TRADK.  281 

chances  against  the  cliisivi^  and  iiuauiiun-y  (iU'l.  the  still  inoiv  fictitious 
tiao,  and  the  very  niattor-of-fact  copper  cash  ^  Ahsolulely  nil,  of 
course. 

So  to-day  we  find  a  conservative  Enolish  banker  estimating  that 
nearly  70.000,000  paper  rubles  are  exported  to  Shanghai  from  Man- 
churia by  Chinese  merchants  and  changed  into  silver  dollars  or  silvei- 
credits:  native  bankers  stating  that  more  than  this  amount  goes  to 
Tientsin  and  (^hefoo,  carried  thei'e  by  (^hinese  hands  and  once  more 
pi-omptly  cashed  into  beloved  silver.  AVhat  does  all  this  nuuin? 
That  the  ruble  is  entirely  discredited  by  astute  Chinese,  and  that 
Avhether  the  Russo-Chinese  bank  in  ]Manchuria  makes  its  payments 
in  paper  or  not  is  a  matter  of  entire  indillerence:  for  no  sooner  is 
paper  received  than  prompt  measures  are  taken  to  cash  it  into  some- 
thing more  finite  than  a  mere  piece  of  parchment  bearing  an  excellent 
likeness  of  his  Imperial  Majesty  the  Czar. 

And  with  this  huge  drain  going  on  every  Russian  enterprise  is 
being  rapidly  crippled.  Harbin,  to  take  one  instance  only,  has  spent 
all  its  money,  and,  Avhat  is  more,  all  its  credit  in  building  itself  new 
houses  capable  of  more  effectively  resisting  the  terrible  winter.  The 
Chinaman  is  the  only  man  who  has  profited  by  this,  for,  although  the 
houses  are  nearly  all  ready,  there  is  no  one  with  money  enough  to  live 
in  them,  so  slack  has  business  become.  The  rubles  have  all  disap- 
peared and  been  hidden  in  the  coffers  of  the  Russo-Chinese  bank, 
alone  able,  among  a  host  of  would-be  empire  builders,  to  purchase 
l)ack  in  silver  what  has  been  emitted  in  paper.  In  both  Port  Arthur 
and  Dahn^  it  is  the  same  story.  Tight  money,  or  no  money  at  all,  are 
the  cries  one  everywhere  hears.  Where  have  all  those  fabulous  tons 
of  i^aper  rubles  disappeared  to  ?     Where,  indeed  ? 

So  the  real  commercial  life  of  jNIanchuria  rolls  on  uninterruptedly 
in  spite  of  the  Russian  invasion,  in  spite  of  imperial  decrees,  in  spite 
of  every  attempt.  Chink,  chink,  go  the  silver  dollars;  chunk,  chunk, 
the  heavy  sycee  of  pure  silver ;  clank,  clank,  the  iron  and  copper  cash 
of  a  people  wdio  understand  business,  and  these  sounds  are  full  of 
ominous  meaning  for  the  incautious  Slav.  The  railway,  it  is  true, 
must  still  be  paid  for  in  rubles,  but  then  in  no  country  in  the  world 
is  the  native  such  an  ade[)t  at  exchange  banking  as  in  the  land  of  the 
blue  gown.  If  you  want  100  rubles,  or  even  10,000,  you  can  buy  them 
almost  anywhere  in  ]\Ianchuria,  for  Chinese  dealers  are  quite  ready  to 
make  a  profit,  and  the  soldiery  are  being  daily  fleeced  of  more  mil- 
lions. But,  though  you  purchase  rubles  with  ease,  you  are  simply  buy- 
ing a  foreign  curi'ency  which  has  no  more  entered  into  the  connnercial 
life  of  the  people  than  the  golden  sovereign  has  at  Hongkong.  And 
then  in  Hongkong  England  has  at  least  some  trade,  which  is  more 
than  can  be  said  of  the  Russian  in  ^Manchuria. 

The  fact  is,  the  Chinaman  is  inordinately  a  lover  of  the  tangible. 
He  likes  his  money  in  solid  coins  or  solid  bullion,  even  if  thej^  are  all 
debased  or  fallen  m  value:  that  is,  something  he  can  handle  and  that 
is  intelligil)le  to  the  merest  child.  It  is  true  that  he  may  conduct  huge 
transactions  in  mere  credits,  but  in  every  case  he  knows  that  differ- 
ences and  balances  are  going  to  be  settled  in  solid  bullion  payinents. 
The  ruble,  therefore,  has  had  its  fling,  and  after  a  half-hearted 
attempt  to  oust"  the  Manchurian  currencies,  it  is  condemned  like 
everything  else  Russian  in  Manchuria  to  the  dreary  existence  of  a 
railway  life. 


282       GOLD  STAKDARD  IN  INTERNATIONAL  TRADE. 

A  year  ago  in  Moiikden  you  could  put  down  your  ])aper  money  any- 
where unchallenged.  To-day  bring  out  a  50-ruble  note  and  your 
Wand  Chinaman  asks  you  to  be  good  enough  to  Avait  a  minute  while 
he  runs  and  changes.  It  is  true  that  the  wily  Jap  has  somewhat  con- 
tributed to  this  unkindly  suspicion,  for  quite  unauthorizedly  he  took 
upon  himself  to  make  up  for  the  tightness  in  the  northern  nuirkets  by 
opening  private  ruble  factories  in  Osaka,  and  flooding  the  place  with 
truly  excellent  likenesses  of  the  great  Czar's  money.  But  apart  froni 
this,  the  local  Chinese  have  been  asking,  with  all  the  rest  of  the  world, 
how  long  this  enormous  Manchurian  expenditure,  which  has  made 
them  richer  than  they  ever  were  before,  can  go  on  without  bringing 
an  almighty  crash;  and  thev  are  quite  right  to  ask  the  question. 
Russia  must  have  spent  500,000,000  or  600,000,000  rubles  if  she  has 
spent  100  in  Manchui-ia  during  the  past  fcAv  years,  and  most  of  this 
has  gone  into  Chinese  pockets.  The  Chinaman  has  surely  had  his 
revenge  in  the  sweetest  way  possible  for  the  brutalities  of  1900,  by 
killing  the  ruble  and  pocketing  the  change.  The  political  crisis  may 
be  settled  one  way  of  the  other,  but  it  can  have  no  influence  on  one 
thing — ^the  fate  of  the  ruble.  The  ruble  is  already  defeated  and  paid 
for.  The  Chinese  have  triumphed  with  a  cash  victory  in  spite  of  a 
material  defeat.  Russia  may  pin  down  Manchuria  with  her  bayo- 
nets, but  the  Chinaman  has  his  hands  in  the  pockets  of  the  Ruski  sol- 
diery and  civilianry,  and  will  starve  them  all  to  death  when  he  likes. 


Appendix  11 


THE  PHILIPPINE  ISLANDS. 

I.  EXTRACT  REGARDING  CURRENCY  FROM    REPORT  OF  THE  SEC- 
RETARY OF  FINANCE  AND  JUSTICE. 

The  evils  resulting  from  the  ra])id  fluctuations  in  the  value  of 
the  Mexican  silver  doHars  and  Spanish-Filipino  currency  in  the 
islands  were  fully  set  forth  in  the  hist  annual  report  from  this  office. 
It  was  there  stated  that  between  January  1,  1902,  and  October 
25,  1902,  the  insular  government  had  sustained  an  aggregate  loss 
of  $956,750,374,  measured  in  gokl  dollars,  by  reason  of  shrinkage 
in  the  value  of  the  silver  in  the  treasury.  That  loss  still  continued 
to  increase  by  the  successive  changes  in  the  official  ratio  between 
local  currencv  and  gold  until  the  aggregate  loss  reached  the  sum  of 
$1,015,562.38"  on  June  30,  1003.  During  the  latter  portion  of  the 
fiscal  year  1903,  however,  the  official  ratio  had  been  made  such  that 
large  sums  of  United  States  money  had  been  paid  ihto  the  treasur}^ 
instead  of  local  currency,  so  that  the  amount  of  local  currency 
steadily  diminished  and  of  United  States  money  steadily  increased. 

The  value  of  silver  in  the  markets  of  the  world  commenced  to  rise 
in  February,  1903,  and  has  continued  to  rise,  with  more  or  less  fluctua- 
tions, down  to  near  the  1st  of  Xoveml)er,  1903,  the  date  of  this  report. 
But  the  amount  of  local  currency  remaining  in  the  treasury  during 
the  period  of  the  rise  in  price  of  silver  was  so  small,  compared  with 
what  it  had  been  during  the  period  of  depreciation  in  the  price  of 
silver,  that  but  a  very  snuill  portion  of  the  losses  caused  by  the  depre- 
ciation was  recouped. 

During  the  period  last  referred  to  there  was  another  source  of  loss 
to  the  treasury  in  the  fluctuating  currency.  The  official  ratio  between 
the  two  currencies  Avas  maintained  at  such  a  rate  that  very  little 
Mexican  or  local  currency  came  into  the  treasury  in  payment  of  public 
dues,  it  being  more  ])r()(itab]e  to  pay  in  United  States  money  thaji  in 
local  currency:  but  as  the  assets  of  the  government  were  largely  in 
local  currency,  it  necessarily  made  its  payments  in  local  currency,  and 
at  the  official  ratio.  This  resulted  in  a  materially  larger  number  of 
Mexican  dollars  being  paid  out  to  satisfv  the  government's  current 
liabilities  than  would  have  been  paid  out  had  the  official  ratio  and  the 
commercial  ratio  been  the  same.  From  this  source  tliere  was  a  large 
loss  to  the  treasury. 

283 


284       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

The  following  are  the  ratios  in  effect  during  the  fiscal  year  1003 
between  Mexican  or  local  currency  and  money  of  the  United  States: 

From  July  1  to  7,  1902,  the  ratio  existing  was  $2.27  Mexican 
currency  for  $1  of  money  of  the  United  States ;  July  7  to  September 
23,  2.35  to  1;  September  23  to  October  26,  2.40  to  1;  October  20 
to  November  12,  2.46  to  1;  November  12  to  November  23,  2.50  to 
1;  November  23  to  Januarv  25,  1003,  2.60  to  1;  Januarv  25  to 
March  11,  2.66  to  1 ;  March  U  to  April  4,  2.6)0  to  1 ;  April  4  to  May  1, 
2.55  to  1;  Mav  1  to  May  14,  2.50  to  1;  May  14  to  June  30,  1903,  2.45 
to  1.  "^  ' 

To  meet  the  manifest  and  universally  acknowledged  hardships  of 
an  unstable  currency,  disastrous  alike  to  all  business  interests  and  to 
the  government,  the  Congress  of  the  United  States  on  the  2d  day  of 
March,  1903,  passed  an  act  entitled  "An  act  to  establish  a  standard  of 
value  and  to  provide  for  a  coinage  system  in  the  Philippine  Islands," 
whereby  a  system  of  a  new  currency  was  authorized  by  Congress,  sub- 
stantially in  accordance  with  the  recommendations  made  by  the  Com- 
mission in  each  of  its  three  reports.  The  beneficial  effect  of  the  new 
legislation  by  Congress  w\as  immediately  felt  in  business  circles. 
While  it  w^as  impossible  for  the  new  system  to  be  put  into  immediate 
operation,  yet  the  fact  that  such  a  system  was  to  be  in  force  in  a  short 
time  restored  confidence  to  business  men  to  a  very  large  degree,  and 
enabled  the  government  to  make  its  forecast  of  income  and  expense 
w  ith  more  certainty.  The  beneficial  and  steadying  effects  of  the  new 
law  were  felt  almost  from  the  moment  of  its  approval  by  the  Presi- 
dent of  the  United  States.  Arrangements  were  immediately  made, 
through  the  Bureau  of  Insular  Aft'airs  at  Washington,  for  the  pur- 
chase of  silver  and  other  metals  for  the  new^  coinage,  and  for  the  coin- 
age of  the  same  at  the  mints  of  the  United  States,  and  for  the  prepa- 
ration of  the  silver  certificates  authorized  by  the  act  of  Congress 
i-eferred  to,  through  the  Bureau  of  Engraving  and  Printing  at  Wash- 
ington. The  designs  which  were  accepted  for  the  new  coins  were 
made  by  Seiior  Melecio  Figueroa,  a  Filipino,  and  are  very  attractive. 

Tlie  purchases  of  silver  for  the  new  coinage  undoubtedly  contrib- 
uted to  the  increase  in  the  market  value  of  silver,  though  other  causes 
operated  to  produce  that  result.  The  price  of  silver  steadily  advanced 
from  40.1  cents  per  ounce  in  New  Yorlc  on  March  26,  1903,  when  the 
insular  government  commenced  to  purchase,  to  50.5  cents  per  ounce 
on  or  about  November  1,  1003,  when  the  government  ceased  such  pur- 
chases, it  being  then  considered  that  the  amount  already  coined  and  to 
be  coined  from  silver  and  other  metals  purchased  down  to  that  date, 
coupled  with  the  Spanish-Filipino  coins  and  ITnited  States  money  in 
circulation  in  the  islands,  would  furnish  a  sufficient  circulating 
medium  for  all  the  demands  of  business  until  the  connnerce  of  the 
islands  should  increase.  Down  to  November  1,  1903,  11,707,005  ounces 
of  silver  had  been  purchased  for  the  new  coinage,  at  a  cost  of  $6,317,- 
460.63,  averaging  54.108  (•ent^s  ])er  ounce.  Metals  for  minor  coins  had 
been  purchased  at  a  cost  of  $86,  042.01.  From  the  metals  so  purchased 
there  had  been  coined  and  ship])ed  to  Manila  down  "to  November  1, 
1903,  14,500,000  Philii^pine  pesos,  half-pesos  to  the  value  of  1,550,000 
pesos,  20-centavo  pieces  to  the  value  of  1,070,000  pesos.  10-centavo 
pieces  to  the  value  of  510,000  pesos,  5-centavo  pieces  to  the  value  of 
362,500  pesos,  1-centavo  pieces  to  the  value  of  79,200  pesos,  and  half- 


C40LI>    STANDARD    IN    INTERNATIONAL    TRADPL  285 

t-entavo  pieces  to  the  value  of  54,550  pesos.  Of  the  ciirrcncy  so  coined, 
J.-lr,54;i.()50  pesos  in  all,  iiichuliiig  subsidiary  and  minor  coins,  had  been 
received  in  Manila  np  to  and  includinij  October  31.  On  October  31 
there  were  likewise  in  transit  to  Manila  1.5()(),()()0  in  pesos,  1,000,000 
in  half-pesos,  500,000  in  'JO-centavo  pieces,  ()0,000  in  10-centavo  pieces, 
70,000  in  5-centavo  pieces,  20,800  in  1-centavo  pieces,  1(5,800  in  half- 
centavo  pieces,  making  an  aggregate  of  3,'227,()00  ])esos  in  transit. 
This  makes  a  total  of  17,771,250  pesos  in  value  of  Philippines  currency 
i-eceived  and  in  transit  on  October  31.  A  large  portion  of  the  minor 
coins  so  received  have  been  stored  in  the  insular  treasury,  but  deposits 
have  liJcewise  been  made  in  the  local  banks  that  are  legal  government 
depositx)ries  and  have  by  them  been  placed  in  circulation  to  a  greater 
or  less  extent.  The  insular  government  has  likewise,  since  the  1st  of 
August,  1903,  distributed  the  Philippine  pesos  in  payment  of  all  its 
civil  employees,  and  in  payment  of  its  other  obligations  so  far  as 
practicable. 

Pearly  in  the  inauguration  of  the  ncAV  system  a  question  of  great 
practical  importance  arose  as  to  what  should  be  done  with  the  Mexi- 
can and  Spanish-Filipino  coins  in  the  islands.  Strong  pressure  was 
brought  to  bear  by  the  local  banks  and  other  dealers  in  currency  to 
induce  the  Commission  to  enact  a  law  to  prohibit  the  further  importa- 
tion of  Mexican  dollars,  or  impose  a  heavy  tax  upon  such  importation, 
and  agreeing  to  take  up  or  redeem  all  the  Mexican  currency  in  the 
islands  at  a  lixed  valuation.  It  was  urged  that  the  government  under 
those  circumstances  might  well  redeem  all  the  existing  local  currency, 
both  Mexican  and  Spanish-Filipino,  at  a  uniform  ratio  of  1  peso 
of  the  new  currency  for  1  peso  of  the  old.  The  result  of  such  action 
would  necessarily  have  been  to  have  given  an  immediate  fictitious 
value  to  the  local  currency  then  in  the  islands,  and  to  have  enabled 
the  banks  and  others  who  might  get  possession  of  it  to  obtain  a  much 
larger  price  than  its  true  and  actual  value.  The  result  likewise 
would  have  been  to  have  imposed  upon  the  government  a  great  ex- 
pense by  reason  of  paying  a  fictitious  value  for  the  local  currency  in 
the  islands,  probably  largely  in  excess  of  the  whole  profits  that  may 
be  made  from  seigniorage  on  the  new  coins.  It  was  also  probable 
that  the  demonitization  of  the  Mexican  coins  would  tend  of  itself 
rapidly  to  expel  them  from  the  islands,  and  that  the  danger  of  their 
importation  was  not  then  imminent.  After  careful  consideration  it 
was  determined  that  the  ordinary  laws  of  supply  and  demand  should 
be  allowed  to  have  full  sway,  for  the  present  at  least,  and  that  the 
Mexican  dollars  should  be  allowed  to  flow  wherever  the  current  natur- 
ally tended  to  take  them,  and  that  the  government  should  not  redeem 
them  or  any  part  of  them  at  any  time  or  at  any  price. 

The  result  so  far  has  demonstrated  the  Avisdom  of  this  conclusion. 
For  some  time  before  the  inauguration  of  the  new  system  the  fact 
that  it  was  to  be  inaugurated,  in  connection  with  other  large  causes, 
has  tended  to  jjroduce  a  constantly  accelerated  flow  of  Mexican 
dollars  out  of  the  islands.  From  January  1,  1903,  down  to  March 
1,  1903,  and  before  the  act  of  Congress  had  passed,  the  exporta- 
tion of  Mexican  dollars  amounted  to  approximately  1,600,000  pesos, 
and  the  importation  of  them  to  approximately  1,200,000  pesos.  From 
that  date  down  to  the  1st  day  of  August,  when  the  new  currency 
began  to  be  put  into  circulation,  the  exports  of  Mexican  dollars 


286       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

amounted  to  approximately  11,400,000  pesos,  and  the  imports  to 
approximately  251,000  pesos.  From  the  1st  day  of  August  to  the 
1st  day  of  November,  1903,  the  export  of  Mexican  dollars  amounted 
to  4,766,900  pesos,  and  the  imports  to  774,707  })esos,  including  a  small 
amount  of  Spanish-Filipino  money.  The  importations  and  exporta- 
tions  of  Mexican  dollars  from  the  1st  day  of  January,  1003,  to  the  1st 
day  of  November,  1903,  aggregated  approximately  17,767,000  and 
2,226,000,  respectively,  leaving  a  net  excess  of  exports  over  imports 
amounting  to  approximately  15,541.000,  which  is  approximatel}^  the 
amount  of  the  new  coinage  that  has  been  introduced  into  the  islands. 
So  that  the  currency  available  in  the  islands  has  not  been  at  all 
diminished  by  reason  of  the  export  of  Mexican. 

It  is  impossible  to  estimate  with  any  exactness  the  number  of  Mexi- 
can dollars  still  left  in  the  islands.  Mr.  Jones,  manager  of  the  Hong- 
kong and  Shanghai  Banking  Corporation  at  Manila,  estimates  that 
not  more  than  4,000,000  pesos  Mexican  are  still  remaining  in  the 
islands.  Other  estimates  are  much  higher.  The  amount  of  such 
coins  in  all  the  banks  and  in  the  insular  treasury  on  the  1st  day  of 
October,  1903,  was  much  less  than  1,000,000  pesos.  There  was  no 
record  of  the  amount  of  such  coins  in  the  islands  at  any  time ;  nearly 
all  of  them  were  introduced  in  violation  of  Spanish  law,  and,  there- 
fore, necessarily  no  record  was  made  thereof.  The  Mexican  dollars 
were  the  coinage  of  a  foreign  country,  in  part  unlawfully  introduced 
into  the  islands,  and  the  insular  government  manifestly  owes  no  duty 
in  regard  to  them.  Other  considerations  pertain  to  the  Spanish- 
Filipino  coins.  They  were  issued  by  authority  of  the  Government 
that  controlled  the  Philippine  Islands,  and  are  in  the  hands  of  the 
residents  of  these  islands.  They  are  not  used  in  Asiatic  coimtries,  so 
that  it  is  impracticable  to  export  them  to  those  countries,  as  is  done 
with  the  Mexican  dollars.  It  was  considered  that  good  faith  and  fair 
dealing  required  that  the  insular  government  should  on  some  just 
basis  redeem  the  Spanish-Filipino  coins,  and  it  is  proposed  to  take 
such  action  at  an  early  date  upon  a  basis  to  be  hereafter  determined. 
This  basis,  however,  will  not  be  in  excess  of  the  commercial  value  of 
Mexican  dollars,  and  after  a  reasonable  time  will  probably  be  the 
bullion  value  of  the  coins.  The  Spanish-Filipino  coins  that  are  in  the 
insular  treasury  are  already  being  transported  to  San  Francisco  to 
be  coined  into  new  Philippine  coins  in  the  mint  there  located.  The 
official  ratio  between  United  States  money  and  local  coins,  both  Mexi- 
can and  Spanish-Filipino,  for  payment  of  public  dues  has  been  main- 
tained at  $1  of  United  States  money  for  $2.30  of  the  local  coins  since 
August  1  to  November  1,  1003.  This  ratio  was  an  artificial  one,  and 
gives  to  the  local  currency  materially  less  than  its  commercial  value. 

The  result  has  been  that  very  little  of  it  has  been  paid  into  the 
treasury  for  payment  of  public  dues  during  that  period.  On  the 
23d  day  of  October,  1903,  the  ci\'il  governor  issued  a  proclamation, 
in  accordance  with  the  act  of  Congress  of  March  2,  1903,  providing 
that  Mexican  dollars  would  not  be  received  for  public  dues  after 
the  1st  day  of  January,  1904.  After  that  date  another  date  will 
doubtless  be  fixed  after  which  the  Spanish-Filipino  coins  will  not 
be  received  in  payment  of  public  dues;  but  between  the  date  of 
January  1,  1004,  and  the  date  when  Spanish-Filipino  coins  become 
demonetized  the  ratio  between  United  States  money  and  the  Spanish- 


GOLD    STANDAKD    IN    INTPIRNATIONAL    TRADP:.  287 

l<^ili|)iiio  coins  for  payment  of  public  dues  ouj^jht  to  be  a  fair  com- 
mercial ratio,  so  that  such  coins  will  come  into  the  treasury  in  pay- 
ment of  public  dues,  and  upon  coming  in  they  ought  to  be  there 
retained  and  shijiped,  from  time  to  time,  to  San  Francisco  to  be 
recoined  into  the  new  Philippine  coins.  During  the  same  period  pro- 
vision ought  also  to  be  made  for  their  redemj)ti()n  by  the  treas- 
urer at  the  oflicial  ratio,  irrespective  of  whether  they  are  or  are  not 
tendered  in  i)ayment  of  jMiblic  due.s.  It  willreciuire  considerable  time 
to  get  in  the  Spanish- Filii)ino  coins,  the  amount  of  which  is  esti- 
mated at  between  11,000,000  and  15,000,000  pesos,  to  expel  the  Mex- 
ican pesos,  and  to  introduce  the  new  Philippine  coins  throughout  the 
remote  provinces.  The  number  of  Philii)pine  pesos,  subsidiary  and 
minor  coins,  deposited  in  the  banks  and  by  them  put  into  circulation, 
and  put  into  circulation  by  jjayment  directly  from  the  treasury  for 
salaries,  wages,  and  other  obligations  of  the  government,  is  as  follows, 
prior  to  the  1st  day  of  November,  1908: 

On  October  81  there  Avere  held  in  the  vaults  of  the  treasury 
9,517.004.22  pesos,  and  in  circulation  5.026,045.78  pesos,  of  which  last 
amount  3,246,473.50  pesos  consisted  of  money  held  in  the  vaults  of 
the  four  principal  banks  of  Manila.  The  aggregate  of  these  two 
items— 9,517,004.22  and  5,026.645.78— is  14,543.650  pesos,  the  total 
number  at  that  time  received  in  the  islands. 

In  accordance  with  the  provisions  of  said  act  of  Congress,  steps 
were  immediately  taken  to  secure  the  printing  of  the  ncAv  silver  cer- 
tificates, such  certificates,  lacking  only  the  seal  and  numeral,  having 
been  received  in  the  islands  up  to  and  including  October  30  to  the 
amount  of  5,000,000  Philijjpine  pesos.  The  work  of  printing  the 
numerals  and  seals  upon  them  was  immediately  begun  under  the 
direction  of  the  treasurer,  and  their  disbursement,  in  exchange  for 
silver  pesos  deposited  in  the  treasury,  commenced  on  the  28th  day  of 
October,  1903.  From  that  date  and  during  the  first  week  in  Novem- 
ber about  400.000  of  them  were  placed  in  circulation.  They  form 
an  exceedingly  convenient  means  of  exchange  and  relieve  the  burden- 
someness  of  making  pa3'ments  in  the  heavy  silver  coin,  either  old  or 
new,  and  come  as  a  great  relief  for  business  men  and  all  others  who 
have  occasion  to  receive  or  pay  out  money. 

The  act  of  Congress  above  referred  to,  and  likewise  the  act  ©f  Con- 
gress approved  July  1,  1902,  entitled  "An  act  temiDorarily  to  provide 
for  the  administration  of  the  afl'airs  of  civil  government  in  the  Philip- 
pine Islands,  and  for  other  purposes,''  provided  in  general  terms  the 
safeguards  that  might  be  employed  to  make  certain  the  maintenance 
of  the  parity  of  the  Philippine  peso  Avith  gold.  To  put  those  pro- 
visions of  the  act  of  Congress  into  ett'ect,  and  to  supply  such  other 
means  as  were  deemed  necessary  for  maintaining  the  parity  between 
the  new  currency  and  gold,  and  to  supply  the  necessary  machinery 
for  issuing  and  safeguarding  the  issuing  of  silver  certificates,  the 
Commission  on  the  10th  day  of  October,  1903,  passed  Act  No.  938, 
entitled  "An  act  constituting  a  gold-standard  fund  in  the  insular 
treasury,  to  l)e  used  for  the  purpose  of  maintaining  the  parity  of  the 
silver  Phili])pine  peso  Avith  the  gold-standard  i)eso,  and  organizing 
a  division  of  the  cui-rency  in  the  bureau  of  the  insular  treasury 
through  Avhich  such  fund  shall  be  maintained,  expenditures  made 
therefrom,  and  accretions  made  thereto,  and  providing  regulations 


288  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

for  the  exchange  of  currencies  and  for  the  issue  and  redemption  of 
silver  certificates,"  Avhich,  for  brevity  in  this  report,  is  termed  the 
"Gokl  standard  act." 

That  act  i)rovides  for  the  creation  of  a  *•'  gokl-standard  fund,"  to  be 
used  for  the  purpose  of  maintaining  the  parity  of  the  silver  Philip- 
pine peso  Avith  the  gold-standard  peso  provided  in  the  act  of  Congress 
approved  March  2,  1903.  It  states  that  all  funds  in  the  insular  treas- 
ury which  are  the  proceeds  of  the  certificates  of  indebtedness  issued 
under  said  act  of  Congress,  all  profits  of  seigniorage  made  in  the 
purchase  of  bullion  and  coinage  therefrom,  all  profits  from  the  sale  of 
exchange  by  the  insular  government  between  the  Philippine  Islands 
and  the  United  States,  and  all  other  receipts  in  the  insular  treasury 
accruing  from  the  exercise  of  its  functions  of  furnishing  a  convenient 
currency  for  the  islands  shall  constitute  a  separate  and  trust  fund.  It 
can  not  be  used  to  pay  any  of  the  expenses  of  the  insular  government, 
except  those  connected  with  the  purchase  of  bullion  and  the  coinage 
of  the  same,  those  which  are  incident  to  the  transportation  of  such 
money  to  the  Philippine  Islands  from  the  place  of  coinage,  putting  of 
the  money  into  circulation,  including  the  preparation  and  issue  of  the 
silver  certificates,  and  the  carrying  out  of  such  financial  transactions 
as  may  be  authorized  by  law  to  maintain  the  circulation  of  the  new 
currency  and  for  the  maintenance  of  the  parity  of  value  between  the 
silver  Philippine  peso  and  the  subsidiary  and  minor  coins  wdth  gold, 
with  the  proviso  that  there  may  be  withdrawn  from  the  gold-standard 
fund  such  amount  as  the  Philippine  government  may  deem  proper  to 
pay  the  principal  and  interest  of  the  certificates,  or  any  part  of  its 
indebtedness  incurred  under  section  G  of  the  act  of  Congress  of  March 
2,  1903.  There  is  created  in  the  bureau  of  the  insular  treasury  a 
division  of  currency,  the  chief  of  the  division  to  be  appointed  by  the 
civil  governor,  with  the  advice  and  consent  of  the  Commission,  at  an 
annual  salary  of  0,000  pesos  Philippines  currency.  It  is  made  the 
duty  of  the  chief  of  the  division  of  currency  to  examine  the  books  of 
the  treasurer  and  auditor,  to  make  rejjort  of  the  funds  in  the  treasury 
which  are  to  constitute  the  gold-standard  fund  and  to  be  segregated 
as  such,  and  to  make  his  report  thereof  to  the  treasurer. 

If  the  treasurer  and  auditor  concur  in  the  recommendations  so 
made,  a  segregation  shall  be  made  in  accordance  with  that  report  on 
the  books  of  the  treasurer  and  auditor.  In  case  of  any  difference  of 
opinion  between  the  chief  of  the  division  of  currency,  the  treasurer, 
and  the  auditor,  the  method  of  segregation  is  to  be  finally  determined 
by  the  secretary  of  finance  and  justice.  After  the  segregation  has 
been  effected  all  receipts  for  moneys  coming  into  the  treasury  that 
ought  to  be  deposited  to  the  gold-standard  fund  shall  be  submitted 
to  the  chief  of  the  division  of  currency  for  his  initialing  and  proper 
notation  of  the  same.  When  any  money  is  to  be  withdrawn  from  the 
gohl-staiulard  fund,  or  transferred  from  the  treasury  in  Manila  to  a 
depositary  elsewhere,  or  vice  versa,  the  warrant  or  draft  or  tele- 
graphic transfer  of  the  same  must  state  specifically  that  it  is  from  the 
gohkstaudard  fund,  and  shall  be  initialed  and  noted  by  the  chief  of 
the  division  of  currency.  No  transaction  in  the  treasury  witli  refer- 
ence to  the  coinage  of  money,  the  circulation,  the  maintenance,  and 
preservation  of  the  gold-standard  fund,  the  nuiintenanceof  the  parity, 
or  the  issue  or  retirement  of  silver  certificates  shall  take  place  until 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       289 

first  submitted  to  the  chief  of  the  division  of  currency.  It  is  made 
Iiis  duty  to  keep  a  set  of  books  dealing  sok>ly  with  the  financial  oper- 
ations of  tile  iiovernnient  in  coinage  and  currency  matters  and  in  the 
administration  of  the  gold-standard  fund,  and  to  make  a  monthly 
statement  of  the  same  to  the  insular  treasurer  and  to  the  secretary  of 
finance  and  justice.  But  the  actual  custody  and  control  of  all  insular 
funds,  including  the  gold-standard  fund,  rcnuiins  in  the  insular 
treasurer,  as  heretofore,  and  he  is  responsible  for  the  same;  the  duties 
of  the  chief  of  the  division  of  currency  to  be  performed  under  his 
supervision. 

For  the  purpose  of  maintaining  the  parity  of  the  Philippine  silver 
peso  with  the  Philippine  gold  peso,  Avhich  latter  is  the  theoretical 
standard,  under  the  act  of  Congress  referred  to,  and  of  keeping  the 
currency  equal  in  volume  only  to  the  demands  of  trade,  five  special 
provisions  are  made.     The  treasurer  is  authorized — 

First.  To  exchange  at  the  insular  treasury  for  Philippines  currency 
offered  in  sums  of  not  less  than  10,000  pesos,  or  United  States  money 
offered  in  sums  of  not  less  than  $5,000,  drafts  on  the  gold-standard 
fund  deposited  in  the  United  States  or  elsewhere,  charging  a  pre- 
mium of  three-fourths  of  1  percent  for  demand  drafts  and  IJ  per  cent 
for  telegraphic  transfers,  and  to  direct  the  depositaries  of  the  funds 
of  the  Philippine  government  in  the  United  States  to  sell  upon  the 
same  terms  and  in  like  amount  exchange  against  the  gold-standard 
fund  in  the  Philippine  Islands.  The  premium  to  be  charged  for 
drafts  and  telegraphic  transfers  may  be  temporarily  increased  or 
(k^creased  by  orders  of  the  secretary  of  finance  and  justice,  should 
the  conditions  at  any  time  existing,  in  his  judgment,  require  such 
action. 

Second.  To  exchange  at  par,  on  the  approval  of  the  secretary  of 
finance  and  justice.  United  States  paper  currency  of  all  kinds  for 
Philippines  currency,  and  the  reverse. 

Third,  On  like  apj^roval,  to  exchange  for  Philippines  currency 
United  States  gold  coin  or  gold  bars  in  sums  of  not  less  than  10,000 
pesos  or  $5,000,  charging  for  the  same  a  premium  sufficient  to  cover 
the  expenses  of  transporting  United  States  gold  coin  from  New  York 
to  ^lanila,  the  amount  of  such  premium  to  be  determined  by  the  sec- 
retary of  finance  and  justice. 

Fourth.  To  withdraw  from  circulation  until  ]3aid  out  in  response 
to  demands  made  upon  it,  in  accordance  with  the  provisions  of  the 
act,  Philippines  currency  exchanged  and  deposited  in  the  Treasury. 

Fifth.  To  withdraw  from  circulation  United  States  paper  currency 
and  gold  coin  and  gold  bars  received  by  the  insular  treasury  in 
exchange  for  Philippines  currency,  until  the  same  shall  be  called  out 
in  response  to  the  jjresentation  of  Philippines  currency,  or  until  an 
insufficiency  of  Philippines  currency  shall  make  necessary  an 
nicreased  coinage,  in  which  e^ent,  for  the  purpose  of  providing  such 
coinage,  the  coin  so  obtained  shall  become  part  of  the  gold-standard 
fund. 

The  insular  treasurer  and  the  treasurers  of  the  several  provinces  are 
authorized  to  exchange  Philippine  pesos  on  demand  for  the  subsidiary 
and  minor  Philippine  coins,  and  the  reverse,  in  sums  of  10  pesos  or 
any  multiple  thereof. 

S.  Doc.  128, 58-3 19 


290       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

The  issue  and  redemption  of  silver  certificates  is  to  be  conducted 
under  the  immediate  supervision  of  the  chief  of  the  division  of  cur- 
rency, and  his  books  are  to  contain  detailed  accounts  of  the  issue  and 
redemption  thereof.  The  treasurer  is  authorized  to  issue  silver  cer- 
tificates upon  receiving  deposits  of  the  standard  Philippine  pesos,  in 
accordance  with  regulations  fully  provided  in  said  act,  which  are  de- 
signed to  secure  safety  in  the  preparation  of  the  plates,  engraving, 
printing,  and  circulation  thereof.  The  more  important  safeguards  in 
this  respect  are  that  when  the  silver  certificates  have  been  entirely 
completed,  cut,  counted,  and  placed  in  proper  bundles,  they  shall  be 
deposited  in  the  reserve  vault,  there  to  remain  until  required  for 
circulation,  and  not  to  be  considered  while  so  remaining  in  the  vault 
as  available  cash  for  the  government,  and  shall  not  appear  as  such  on 
the  books  of  the  treasury,  although  the  treasurer  shall  be  responsible 
for  the  same  as  money;  that,  from  time  to  time,  the  treasurer  shall 
withdraw  such  amount  of  silver  certificates  from  the  reserve  vault  as 
may  be  required  to  meet  the  demands  for  their  purchase,  in  accord- 
ance with  the  provisions  of  section  8  of  the  act  of  Congress  of  March 
2,  1903.  All  certificates  so  withdrawn  from  the  reserve  vault  are  to 
be  thereafter  treated  as  cash  available  for  the  government,  and  the 
pesos  received  in  exchange  for  the  silver  certificates  sold  are  to  be 
dejjosited  in  the  reserve  vault  and  held  for  the  payment  of  the  cer- 
tificates on  demand,  and  shall  constitute  a  trust  fund  to  be  used  for 
no  other  purpose.  Certificates  mutilated  or  otherwise  unfit  for  circu- 
lation when  paid  into  the  insular  treasury  shall  not  be  reissued  but 
retained  for  future  destruction,  with  safeguards  in  the  act  fully 
provided. 

The  theory  of  the  act  of  Congress  referred  to,  and  of  the  gold- 
standard  act  i^assed  by  the  Commission,  is  substantially  that  a 
gold-standard  circulating  medium  may  be  maintained  at  a  parity 
with  gold  without  any  large  use  of  a  gold  currency  by  the  aid  of 
the  means  provided  for  maintaining  the  parity  between  the  two 
currencies.  The  essential  elements  of  the  system  are  based  upon  the 
maintenance  of  a  reasonable  gold-standard  fund,  the  rigid  restriction 
of  the  amount  of  new  coinage  so  as  to  meet  only  the  demands  of  com- 
merce, the  retirement  of  a  sufficient  amount  of  such  coinage  whenever 
it  shall  become  apparent  that  there  is  more  in  circulation  than  the 
demands  of  commerce  require,  the  issuance  of  more  of  the  new  cur- 
rency whenever  it  becomes  apparent  that  there  is  a  shortage  of  such 
currency  in  circulation,  and  the  furnishing  of  reasonable  facilities  for 
the  conversion  of  gold  coin  or  other  money  of  the  United  States  into 
Philippines  currencty,  or  the  reverse,  as  the  demands  of  commerce  may 
require.  The  theory  and  system  are  substantially  the  same  as  those 
adopted  by  the  British  Government  to  maintain  the  parity  of  the 
rupee  in  India,  by  the  Japanese  Government  to  maintain  the  parity 
of  the  yen  in  Japan,  and  by  the  Dutch  Government  to  maintain  the 
parity  between  the  silver  coins  in  circulation  and  the  gold  standard  in 
Java.  The  new  currency  system  about  to  be  inaugin-ated  in  the 
Straits  Settlements  is  based  upon  the  same  theory.  An  attempt  to 
to  introduce  the  same  system  upon  a  nnich  larger  scale,  and  particu- 
larly with  reference  to  a  silver  coinage  but  a  gold  standard,  for 
Mexico  and  a  coinage  that  shall  circulate  throughout  the  Empire  of 
China,  has  been  under  consideration  during  the  past  year,  largely 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       291 

(liroiifi-li  tho  instnimontality  of  commissions  appointod  b}"  the  United 
States  Government  and  by  the  Kepublic  of  Mexico.  The  Pliilippines 
government  is  so  hiroely  interested  in  this  (juestion  in  its  hirger  sense, 
particnhirly  as  it  rehites  to  the  neighl)orin<>:  conntry  of  China,  that 
$1().()00,  in  money  of  the  United  States,  has  been  appropriated  from 
the  insuhir  treasnry  toward  the  payment  of  the  expenses  of  that  com- 
mission in  its  work  in  Cliina. 

Among  other  things  provided  by  the  act  of  Congress  approved 
March  2.  li)03,  for  maintaining  the  parity  of  the  vahie  of  the  silver 
Phili[)pine  [)eso  and  the  gokl  Philip{)ine  peso,  was  one  anthorizing 
the  issue  of  temporary  certificates  of  indebtedness  bearing  interest 
at  a  rate  not  exceeding  4  per  cent  annually,  payable  at  periods  of 
three  months  or  more,  but  not  later  than  one  year  from  the  date  of 
issue,  in  denominations  of  $25,  or  some  multiple  thereof,  redeemable 
in  gold  coin  or  any  lawful  money  of  the  United  States,  according  to 
the  terms  of  issue  prescribed  by  the  insular  government,  with  a  pro- 
vision that  the  amount  of  such  certificates  outstanding  at  one  time 
shall  not  exceed  $10,000,000,  money  of  the  United  States,  and  that 
such  certificates  shall  be  exempt  from  the  payment  of  all  taxes  or 
duties  of  the  government  of  the  Philippine  Islands,  or  any  local 
authority  therein,  or  the  Government  of  the  United  States,  as  Avell  as 
taxation  in  any  form  by  or  under  any  State,  municipal,  or  local 
authority  in  the  United  States  or  the  Philippine  Islands;  the  pro- 
ceeds of  such  certificates  to  be  used  exclusively  for  the  maintenance 
of  the  parity  and  for  no  other  purpose,  except  that  a  sinn  not  exceed- 
ing $:3,()00.000  at  any  one  time  may  be  used  as  a  continuing  credit  for 
the  i^urchase  of  silver  bullion  in  execution  of  the  provisions  of  the  act. 
In  pursuance  of  this  authority,  the  insular  government  on  the  23d  day 
of  Miwch,  1903,  authorized  the  sale  of  $3,000,000  of  such  certificates, 
payable  in  one  year  in  gold  coin  or  money  of  the  United  States.  These 
certificates  were  sold  through  the  Bureau  of  Insular  Affairs  at  AVash- 
ington,  at  a  premium  of  2.513  per  cent.  The  rate  of  interest  being  -1 
per  cent,  and  the  time  which  they  were  to  run  being  one  year,  after 
deducting  the  ])remium,  the  net  interest  paid  would  be  1.487  per  cent. 
The  money  realized  in  this  transaction  Avas  deposited  to  the  credit 
of  the  gold-standard  fund,  with  the  Guaranty  Trust  Company  in 
New  York,  which  paid  at  the  rate  of  3|  per  cent  per  annum  for  use  of 
the  money.  It  therefore  resulted,  inasmuch  as  the  money  remained 
for  a  consideral)le  period  on  deposit  with  the  Guaranty  Trust  Com- 
pany, that  the  interest  received  from  that  deposit  more  than  j^aid  the 
interest  above  stated  that  the  govermnent  must  pay  upon  the  cer- 
ificates.  so  that  the  transaction  cost  the  government  less  than  nothing, 
and  was  an  actual  source  of  profit. 

On  the  25th  day  of  August,  1903,  $3,000,000  more  of  the  certificates, 
to  run  for  the  same  ])eriod  and  to  bear  the  same  rate  of  interest,  were 
sold  at  a  ])remium  of  2.24  per  cent,  and  the  proceeds  were  deposited 
with  the  Guaranty  Ti'ust  Company  at  Xew  York.  The  last  issue  of 
bonds  sold  at  a  slightly  lower  price  than  the  first  because  of  a  greater 
stringency  in  the  money  market  of  Xew  York  at  the  time  of  the  second 
sale.  The  sj^ecial  reasons  for  the  exceedingly  favorable  terms  upon 
which  the  certificates  were  sold  were,  first,  the  entire  safety  of  the  cer- 
tificates; second,  the  fact  that  they  were  made  exempt  from  taxation; 
and,  thirdly,  that  the  Secretary  of  the  Treasury  of  the  United  States 


292       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

authorized  their  deposit  by  national  banks  as  security  for  deposits  of 
United  States  funds  held  by  the  banks.  The  last  circumstance  gave 
to  them  an  especial  value. 

These  two  transactions  probably  are  unique  in  the  history  of  gov- 
ernment loans,  in  that  the  Government  has  actually  made  a  profit  out 
of  its  debts. 

The  facts  in  regard  to  the  passage  of  the  gold  standard  act  and  the 
introduction  of  the  new  currency  have  been  brought  doAvn  substan- 
tially to  November  1,  1903,  so  that  as  much  light  as  practicable  may 
be  thrown  upon  the  workings  of  the  new  currency  and  upon  the  prog- 
i-ess  that  has  been  made  upon  its  inauguration. 

Mr.  E.  W.  Kemmerer,  Avho  was  an  instructor  of  economics  in  Pur- 
due University,  at  Lafayette,  Ind.,  and  had  made  a  special  study  of 
finance  and  currency,  has  been  brought  to  the  islands  to  aid  in  the 
establishment  and  maintenance  of  this  new  system,  and  was  duly 
appointed  to,  and  now  occupies,  the  position  of  chief  of  the  division 
of  currency  created  by  the  gold  standard  act. 

The  opinion  is  confidently  entertained  by  this  office  that  no  single 
step  has  been  taken  since  American  occupancy  that  will  ultimately 
redound  more  to  the  business  interests  and  prosperity  of  the  islands, 
of  its  people  and  business  men,  than  the  successful  inauguration  of 
the  new  system  of  stable  currency. 

It  is  not  to  be  anticipated  that  the  new  currency  or  United  States 
currency  can  immediately  supplant  the  use  of  the  old.  The  moment 
that  silver  commences  again  to  fall  in  value  the  intrinsic  value  of 
the  existing  local  coins  diminishes,  and  the  more  desirable  they  become 
for  the  use  of  the  exporter  and  the  large  purchaser  who  employs  na- 
tive labor  or  buys  native  commodities.  Selling  his  goods  in  the  for- 
eign markets  of  the  -world  upon  practically  a  gold  basis,  the  gold 
which  he  receives  will  enable  him  to  purchase  more  of  the  depreciated 
coin  w^ith  which  to  pay  his  employees  or  to  purchase  commodities  in 
the  interior.  The  habitual  price  of  commodities  and  of  labor  being 
fixed  in  local  currency,  is  not  materially  affected  by  the  change  in  the 
Avorld  value  of  that  local  currency;  so  that  it  will  always  be  advan- 
tageous to  the  class  of  purchasers  and  exporters  mentioned  to  make 
use  of  the  cheaper  currency  in  payment  instead  of  the  better  one,  and 
it  is  difficult  to  provide,  except  by  extremely  drastic  legislation,  meas- 
ures that  will  prevent  such  use,  to  a  certain  extent,  of  the  existing 
coins.  It  is  not  certain  that  it  is  in  the  interest  of  the  commerce  of 
the  country  that  such  steps  should  be  taken  now,  if  at  any  time. 

The  new  currency  upon  a  fixed  and  stable  basis  will  have  all  the 
qualities  of  a  legal  tender,  Avill  be  receivable  for  public  dues,  will  be 
the  official  money  of  the  country,  can  be  converted  at  the  treasury  at  a 
moment's  notice  into  gold  money  of  the  wi)rld,  and  possesses  such 
superior  elements  and  advantages  that  all  commercial  transactions  can 
be  based  upon  it  with  safety  and  certainty,  and  Government  forecasts 
can  be  made  with  all  the  advantages  of  an  absolute  gold  currency. 
The  great  economic  law  that  where  a  good  currency  and  a  debased 
one  exist  side  by  side,  both  having  a  debt-paying  capacity,  the  bad  cur- 
renc)'  drives  out  the  good,  has  little  application  to  the  situation  here. 
Such  local  currency  as  may  remain  in  use  in  the  islands  will  have  no 
debt-paying  capacity,  except  in  fulfillment  of  special  contracts  pay- 
able in  that  commodity  only,  and  will  not  be  money  in  any  technical 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 


293 


sense  of  that  term.  It  will  be  a  commodity  pure  and  simple.  It  will 
not  be  a  case  of  poor  money  driving-  out  good  money,  because  the  only 
money  will  be  good  money.  Nor  is  it  feasible  for  the  Jiew  coinage  to 
be  driven  out  to  other  countries  by  the  local  currency,  because  the 
Philippines  currency  is  not  a  coin  in  circulation  in  other  countries, 
and  will  there  be  available  only  for  reexportation  to  the  Philippine 
Islands,  or  for  bullion,  and  for  bullion  purposes  it  will  not  be  worth 
its  current  value  in  the  Philippine  Islands,  unless  the  market  price  of 
silver  should  increase  to  a  very  marked  degree  and  for  a  much  larger 
percentage  than  appears  within  the  range  of  probability.  On  the 
whole,  it  seeuis  now  almost  certain  that  the  new  system,  with  a  uni- 
form gold  standai'd,  will  be  the  actual  basis  throughout  the  Philip- 
l)ine  Islands  and  in  general  use  therein  within  a  comparatively  few^ 
months. 

It  ought  to  be  remarked  that,  since  the  Philippine  GovernTnent  has 
announced  that  it  is  out  of  the  market  for  the  purchase  of  silver,  the 
market  price  of  silver  has  gradually  fallen,  owing  in  part  to  that 
announcement.  At  the  same  time  the  outflow  of  Mexican  dollars 
from  the  islands  has  substantially  ceased,  because  it  is  no  longer  prof- 
itable foi-  purposes  of  exportation.  It  is  not  impossible  that  some 
may  be  imported  in  the  near  future. 

Banks  and  Banking. 

Since  the  last  report  from  this  o/lice  no  new  banks  have  been  estab- 
lished in  the  islands. b}^  any  governmental  authority,  nor  have  new^ 
offices  been  opened  by  American  or  other  foreign  banking  institutions. 
The  funds  belonging  to  the  insular  government  have  been  more 
largely  retained  in  the  treasury  during  the  fiscal  yenr  1903  than 
before  that  time,  but  the  funds  not  so  retained  in  the  treasury  vaults 
have  been  distributed  between  the  Chartered  Bank  of  India,  Austra- 
lia, and  China;  the  Hongkong  and  Shanghai  Banking  Corporation; 
the  International  Banking  Corporation  of  Connecticut,  and  the  Guar 
anty  Trust  Comjiany  of  New  York,  at  New  York  and  Manila — all 
authorized  depositaries  for  funds  of  the  United  States  Government 
and  for  the  government  of  the  Philijjpine  Islands.  At  the  close  of 
the  fiscal  year  1903  funds  belonging  to  the  insular  treasury  were  dis- 
tributed as  follows: 


Where  deposited. 


Philippines 
cuiTency. 


Insnlar  treasury I 

Chartered  Bank  of  India,  Australia,  and  China |    $492,489.24 

Hons<kc)ug  and  Shanghai  Banking  Corijoration 476,839.77 

Internatiunal  Banking  Corporation 465,55.5.24 

Guaranty  Trust  Co.: 

At  New  York 

At  Manila 499,787.4<l 


United  States        Local 
currency.        currency. 


$4,141,304.02 
363,523.11 
745,690.92 
73.5,840.60 

1,586,873.49 
682,528.99 


$138,00L88 
167,737.09 
177,785.43 


213,971.98 


The  so-called  ''American  Bank  "  was  organized  in  the  city  of  Ma- 
nila during  the  fiscal  year  1902,  with  a  paid-u])  capital  of  $25,000, 
Avhich  has  not  been  increased  up  to  the  present  time.  That  corjjora- 
tion  was  formed  as  a  corporation  by  voluntary  association  under  the 


294       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

Spanish  laws,  no  new  general  corporation  laws  having  been  passed 
by  the  Philippine  Commission,  and  no  charter  having  been  granted 
to  the  American  Bank  by  the  Commission.  Its  status  as  a  legal  cor- 
poration is  doubtful,  in  view  of  the  fact  that  the  granting  of  fran- 
chises is  deemed  to  be  an  act  of  the  sovereign  power,  and  that  the  pres- 
ent sovereign  power  has  never  sanctioned  or  authorized  the  granting 
of  any  franchise  to  the  American  Bank,  or  to  any  other  corporation 
formed  after  the  American  occupancy  by  virtue  of  existing  Spanish 
laws. 

In  the  former  report  from  this  office  a  recommendation  was  made 
that  Congress  be  urged  to  provide  for  a  banking  system  in  the  Phil- 
ippine Islands,  or  sjDecifically  to  authorize  the  Commission  to  estab- 
lish such  system,  with  the  right  to  authorize  the  issue  of  bank  notes. 
The  Congress  has  legislated  upon  the  subject  of  currency  in  the  Phil- 
ippine Islands  without  providing  for  the  creation  of  banks  of  issue. 
It  is  doubtful  whether  the  recommendation  made  in  the  former  report 
ought  now  to  be  renewed.  Since  the  date  of  that  report  provision  has 
been  made  for  the  institution  of  a  wholly  new  currency  system  for  the 
islands,  including  the  issue  of  silver  certificates  by  the  treasurer  in 
exchange  for  Philippine  pesos  deposited  in  the  treasury  for  their 
redem})tion.  While  the  new  silver  certificates  ai'e  not  legal  tender  in 
the  payment  of  ordinary  obligations,  though  they  are  receivable  for 
public  dues,  and  are  not  bank  notes,  nor  money  in  the  ordinary  sense 
of  those  terms,  yet  they  form  a  convenient  means  of  exchange  in 
ordinary  commercial  transactions,  and  perform  to  some  degree  the 
functions  of  ordinary  paper  currency.  It  is  probably  advisable  that 
the  workings  of  the  new  system  shoidd  be  observed  for  a  time  before 
asking  for  further  legislation  in  that  respect.  It  is  possible  that  the 
new  silver  certificates,  coupled  with  a  large  amount  of.  United  States 
paper  currency  which  is  now  in  circulation  in  the  islands,  and  is  legal 
tender,  together  with  the  amount  of  bank  notes  that  are  in  circulation 
issued  by  the  Spanish-Fili])ino  Bank,  will  furnish  all  the  facilities  for 
the  present  that  are  needed.  It  is  therefore  recommended  that  Con- 
gress be  not  asked  to  legislate  at  its  coming  session  in  regard  to  the 
establishment  of  banks  of  issue. 

2.  EXTRACT  FROM  THE  REPORT  OF  THE  CHIEF  OF  THE  BUREAU  OF 
INSULAR  AFFAIRS,  WAR  DEPARTMENT,  1904. 

Philippine  Currency. 

At  the  date  of  my  last  annual  report,  October  31,  1903,  it  was  sliown 
that  a  total  in  pesos,  sulisidiary  and  minor  coinage  of  f*=lT,S81,()r)0  had 
been  coined  and  ship])e(l  to  the  islands;  that  the  purchase  of  silver 
l)iilIion  liad  been  sns])ende(l,  and  that  the  Philippine  Commission  had 
determined  that  this  amount  of  pesos,  supplemented  by  the  recoinage 
of  Spanish-Filipino  coins,  which  they  estimated  was  some  12,000,000 
pesos,  would  be  adequate  fo]-  the  iniiuguration  of  the  coinage  circula- 
tion in  the  Philippines.  ExjXM'ience  in  the  ])ast  year  has  proved  the 
accuracy  of  the  Connnission's  estimate,  es2)ecially  as  to  the  amount  of 
Spanish-Filipino  coins. 

Tliere  have  already  been  withdrawn  from  circulation,  shipped  to 
the  United  States,  i-ecoined  into  the  new  currency,  and  i-eshij)ped  to 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 


295 


the  islands  and  thoro  ontcnvd  into  circidation.  ov  in  transit  or  awaiting 
shipment,  a  total  of  ll,Tii'].000  Spanisli-l^'ilipino  pesos,  as  follows: 


Date. 


Invoice. 


Nov.  i:?,  I'jas 

Dec.  11,1903 
Feb.  10,1904 

Mar.  15,1904 

Apr.  14,1904 
May  12,1904 

June  13,1904 

July  14,1904 
Aug.  15,1904 

Sept.  13, 1904 

Oct.  1.5,1904 
Oct.  31,1904 


(Pesos 

t  Med.  pesos 

Pesos 

■^Med. pesos 

(Peseta 

[Pesos 

I  Med.  pesos 

i  Peseta 

(Med.  peseta 

(Pesos  .  - 

Med.  pesos 

■  Peseta _ 

Med.  peseta 

iMixed 

I  Pesos  .  - 

Med.  pesos 

(Peseta- 

[Pesos 

<  Med.  pesos 

(Peseta 

(Pesos 

I  Med.  pesos 

1  Peseta 

iMed. peseta  -__ 

(Pesos 

I  Med.  pesos 

\  Peseta 

(Med. peseta 

(Pesos 

<  Med.  pesos 

(Peseta 

(Pesos 

I  Med.  pesos 

iPeseta 

(Med.  Peseta 

Invoice  not  received. 
Awaiting  shipment.. 


90,000.00 
.510,IK)0.(H) 
200,(K)0.00 

no,  (TO.  00 

90.0(K).(JO 

,5lKI,0(H(.(K) 

,0(^10,000.00 

52,000.00 

4,OOO.0Cf 

310,465.00 

755, 000.  m 

22,000.00 

2,468.50 

66.50 

585,000.00 

625,000.00 

20,000.00 

810, 000:00 

900,(X)0.00 

100,000.00 

10.5,000.00 

8&5,000.00 

25,000.00 

.5,000.00 

109,000.00 

846,000.00 

83,500.00 

3,500.00 

100,000.00 

325,000.00 

5,000.00 

1.55,000.00 

825,000.00 

68,500.00 

6,500.00 


Face  value 
in  Spanish- 
Filipino  cur- 
rency. 


Value  in  Phil- 
ippine cur- 
rency at  pre- 
vailing ratio 
date  of 
shipment. 


Value  in 

United  States 

currency. 


Pfs. 

WKI,  (««>.(«  I 

4(K),(K)0.0() 
al,.556,0(¥).(KI 


ibl,0t)O, 


000. 00 


l,2:^),o(K).oo 

1,810,0(X).()0 
1,000,000.00 

1,102,000.00 
430,000.00 

1,05.5,000.00 

950,000.00 
500,000.00 


rr>2i,739.13 
347,826.09 

1,414,. 545. 45 

<KH),90i).09 

1,088, 495.. 57 
1,601,769.91 

909,090.90 

975,221.24 
390,909.09 

9.59,0f«.90 

863,636.36 
454,545.45 


Total 11,72:3,000.00  i    10,517,779.18 


$260,869.56 
173,913.05 

707,272.72 

495, 454.. 55 

544,247.78 
800,884.96 

454,545.45 

487,610.62 
195,454.54 

479,545.45 

431,818.18 
227,272.72 


5,258,889.59 


"The  shipment  of  February  10  contained,  in  addition  to  1,.566,000  pesos,  39,490  kilograms  of  bar 
silver  and  .50,.585  kilograms  of  blanks,  the  bar  silver  assaying  1,171.39  standard  ounces  and  the 
blanks  1,514.11  standard  ounces. 

bThe  shipment  of  March  15  contained  also  burnt  silver  which  assayed  463  standard  ounces. 

The  weight  In  standard  ounces  after  melting,  and  the  United  States 
currency  value  of  the  silver  contained  in  the  Spanish-Filipino  coins,  is 
shown  in  the  following  table,  covering  shipments  upon  which  reports 
have  been  received,  namely : 


Date  of  shipment. 


Pace  value  in 

Spanish- 
Filipino  cur- 
rency. 


Yield. 


Bullion  value 
in  United 
States  cur- 
rency. 


November  13, 1903 
December  H.  1!KI.3. 
February  in,  1904. 

March  1.5.  Ilt04 

April  14,  1904 

May  12,  1904 

Total 


Pfs. 

600,000.00 

400,000.00 

1,556,000.00 

1,090,  ax  1.00 
1,2;*),  (XX).  00 

1,810,000.00 


standard  oz. 
4&5,092.53 
313.357.10 

1,214,196.84 
848,974.04 
965,313.85 

1,420,125.90 


6,686,000.00 


5,227,060.26 


S268, 322. 62 
18<(,782.94 
700,498.18 
489, 792. 72 
556,911.85 
819,303.40 


3,015,611,71 


296 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 


From  the  foregoing  statement  it  will  appear  the  expectation  has 
been  realized  that  the  Spanish-Filipino  coins  Avonld  contain  so  much 
pure  silver  as  to  make  their  recoinage  i)rolitable,  because  the  value  of 
the  silver  contained  in  these  coins  would  be  equal  or  slightly  above  the 
market  value  of  bullion. 

The  same  methods  of  shipment  as  described  in  detail  in  the  last 
annual  report  have  been  followed  without  the  loss  of  a  centavo.  A 
small  shipment  of  minor  coinage  was  corroded  by  water,  due  to  an 
accident  in  the  carrying  ship.  This  slight  damage  was  covered  by 
insurance,  which  paid  the  cost  of  reburnishing  the  metal. 

There  has  been  recoined  and  returned  to  Manila  from  the  Spanish- 
Filipino  coins  sent  to  the  San  Francisco  mint  an  aggregate  of 
1P7,276,016  in  denominations,  as  shown  by  statement  following,  repre- 
senting shipments  to  October  31, 1904 : 


Denomination. 

Amount 

coined  in 

pesos. 

Standard 
ounces. 

Approximate 
cost. 

Peso - 

1*6,558,000.00 
264,000.00 
232,016.00 
222,000.00 

5,683,600.00 
228,800.00 
200,838.85 
192,168.75 

$3,279,000.00 

50  centavos- 

132,000.00 

20  centavos 

115,868.57 

10  centavos 

110,866.58 

Total 

7,276,016.00 

6,30.5,407.60 

3,637,7a5.15 

Under  authority  of  United  States  law  the  civil  governor,  on  the 
23d  day  of  October,  1903,  issued  a  proclamation  ''  That  Mexican 
silver  dollars  shall  be  receivable  for  jjublic  dues,  at  a  rate  to  be  fixed 
from  time  to  time  by  the  proclamation  of  the  civil  governor,  until  the 
first  day  of  January,  nineteen  hundred  and  four,  and  that  on  and 
after  that  date  such  coins  shall  cease  to  be  so  receivable."  Steps  were 
taken  to  get  in  and  retire  from  circulation  the  Spanish-Filipino  coin- 
age by  fixing  the  ratio  from  time  to  time.  On  June  21,  1904,  an  exec- 
utive order  was  issued  providing  that  "  No  Mexican  pesos  will  be 
receiA'ed  in  payment  of  public  dues,  and  neither  Mexican  pesos  or 
Spanish-Filipino  coins  will  be  purchased  by  the  government  between 
.lune  thirtieth  and  September  thirtieth,  nineteen  hundred  and  four, 
and  after  the  last-named  date  they  will  be  purchased  only  at  their 
bullion  value."  On  January  1,  1904,  the  Mexican  peso  Avas  demone- 
tized and  their  further  imjiortation  prohibited.  On  January  7  drastic 
legislation  was  passed,  effective  October  1,  discouraging  the  further 
circulation  of  anything  but  the  new  Philippine  and  United  States 
currency.  This  legislation  provided  for  a  progressive  tax  on  com- 
mercial paper  and  bank  deposits  in  other  than  currency  based  upon 
the  gold  standard.  Under  these  provisions  the  Mexican  currency  in 
the  islands  found  a  more  favorable  exchange  in  other  near-by  coun- 
tries and  Avas  gradually  exported  from  the  islands.  This  exportation 
was  facilitated  by  reason  of  the  unusual  demand  for  them  due  to 
abnormal  conditions  in  north  China.  The  Spanish-Filipino  currency 
has  been  practically  all  recoined.  The  circulating  currency  is  now, 
therefore,  the  ncAv  Pliilippine  coinage  and  such  moneys  of  the  United 
States  as  find  their  Avay  to  the  islands. 

On  October  30,  1904,  the  civil  governor  reported  by  cable  on  the 
Avorking  of  the  neAv  currency  system  as  follows : 


GOLD  STANDARD  IN  INTERNATIONAL  TRABK.       297 

"llie  approach  of  Ootobor  1,  when  first  currency-taxing  provisions 
becanio  oflVctivo,  caused  lar^c  exports  of  Mexican  pesos  conuncrcially 
and  h>rp'  inllow  of  Spanish-Filipino  coins  in  the  treasury. 

'*  In  S('})teuiher  1,11)7,500  Mexican  i)esos  were  exported  and  a-'iH.G'i'i 
Spanish- Filipino  pesos  came  into  the  treasury  and  were  withdrawn 
from  cirt'uhition.  During  September  actual  circulation  of  new  cur- 
rency increased  1,891,000  pesos.  In  October  to  date  1,682,995  pesos 
Mexican  currency  have  been  exported  commercially,  and  950,000 
Spanish-Filipino  pesos  received  by  insular  government  for  recoinage. 
Have  on  hand  nearly  500,000  Spanish-Filipino  pesos  for  recoinage. 
Increase  of  actual  circulation  new  coins  for  October  approximately 
l.:W)0.0()0  pesos. 

'•  Fvery  bank  in  INIanila  published  notices  refusing  to  receive  old 
currency  on  deposit  after  September  30.  Kailroads  receive  no  old 
currency  at  any  price.  Nearly  all  s'.ccounts  of  banks  throughout  the 
islands  have  been  reopened  in  the  new  currency.  Banking  business 
has  called  in  its  old  notes;  issued  new^  ones  based  upon  the  new  cur- 
rency.    All  new  contracts  are  being  made  new  currency. 

'*  Business  throughout  the  archipelago  conducted  now  mainly  on 
new  basis,  banks  and  large  dealers  cooperating  with  the  government. 
Very  little  old  currency  left,  and  existing  taxing  provisions  will 
eliminate  that  by  January  1  next.  The  gold  standard  is  an  estab- 
lished fact  and  now  meets  approval  of  the  entire  public.  Business 
conditions  much  improved." 

On  the  date  of  this  report  there  are  in  the  islands  24,924,520  new 
Philippine  pesos,  of  which  ^15,963,043  are  in  actual  business  circula- 
tion. The  balance  is  in  the  treasury,  banks,  or  in  the  hands  of  dis- 
bursing officers.  The  above  1*=]5.9()3,043  of  course  includes  the  silver 
certificates,  of  which  ?7,230,000  are  in  circulation. 

The  various  steps  taken  by  the  civil  government  to  gain  this  result 
were  met  by  violent  opposition  and  predictions  of  inevitable  disaster, 
made  to  the  government  officials  both  in  Manila  and  Washington,  but 
in  every  case,  as  soon  as  definite  legislative  action  had  been  taken,  the 
atmosphere  cleared,  and  the  business  interests  con\mended,  by  acqui- 
escence and  cooperation,  the  action  of  the  government. 

The  Philippine  currency  act  was  passed  by  Congress  April  3,  1903, 
The  iirst  new  Phili])pine  peso  was  placed  in  circulation  July  23,  1903. 

Since  that  time  the  Government  has  eliminated  thirty  or  forty  mil- 
lions of  debased  cui'rency  and  has  substituted  for  it  a  currency  based 
upon  the  gold  standard  without  serious  jar  or  dislocation,  all  accom- 
plished within  seventeen  months.  In  the  minds  of  financiers  and 
I>ankers,  this  accom])lishment  is  considered  a  wonderful  achievement, 
unique  in  the  liistory  of  the  world. 

Rn.vEK  Certtficatks. 

In  the  last  report  it  was  shown  that  the  following  amounts  of  silver 
certificates,  or  paper  money,  with  respective  denominations,  had  been 
shipped  to  the  Philippines: 

?2.000,000  in  2's. 
4,(»(tO,n()Oin5's. 
4,000,000  in  lO's. 


298 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 


Since  November  1,  1903,  there  have  been  forwarded  additional  sil- 
ver certificates  aggregating  7,980,000  pesos,  making  a  total  issue  to 
this  date  of  17,980,000  pesos  of  denominations  as  follows : « 

Pesos. 

2-peso   certificates 2,  330,  000 

5-peso    certificates 4.650,000 

:0-peso   certificates 11,000,000 

Orders  have  been  placed  with  the  Bureau  of  Engraving  and  Print- 
ing for  an  amount  which,  with  the  above  total,  will  aggregate 
20,000,000  pesos  in  value,  and  there  are  still  due  from  said  department 
for  delivery  to  the  insular  treasury  the  following  certificates : 

Pesos. 

2-peso   certificates 670,  000 

5-peso    certificates 1,350,000 

Such  shipments  of  certificates  have  been  insured  in  each  in.stance, 
and  the  expenditures  that  have  been  incurred  in  connection  with  their 
]3reparation  and  shipment  have  been  paid  from  Philippine  revenues 
by  the  disbursing  officer  of  this  Bureau  as  follows: 


^*  menf '^i           Forwarded  on  transport- 

Peso  value. 

Insurance. 

Cost  of 
preparing. 

Total  cost. 

Feb.  20,1904 

Sherman 

2,040,000 

1,0(K»,0(X) 
1,99(1,000 
2,950  000 

$31.25 

25.00 
31.25 
31.35 

$3,756.24 
1,471.19 
2,076.37 
3,078.03 

$3, 787. 49 

Apr.  30, 1904 

Thomas 

1,496.19 

May  26,1904 

Sheridan  

2, 107. 63 

June  23, 1904 

Sherman , 

3,109.28 

Total 

118.75 

10,381.83 

10,500.58 

The  Philippine  Commission  has  advised  the  War  Department  that 
at  present  only  the  largest  denomination  that  the  act  of  Congress  au- 
thorizes— namely,  10-])eso  certificates — ^are  in  demand,  and  also  that 
it  is  very  desirable  that  Congressional  authority  be  secured  to  issue 
larger  denominations.  This  recommendation  was  brought  to  the 
attention  of  Congress  and  has  resulted  in  the  following  provision  in 
the  before-mentioned  bill,  w'hich  is  pending  in  the  Senate : 

"  Sec.  10.  That  section  8  of  an  act  of  Congress  approved  March  2, 
1903,  entitled  'An  act  to  establish  a  standard  of  value  and  to  provide 
for  a  coinage  system  in  the  Philippine  Islands,'  is  hereby  amended  by 
striking  out  the  Avord  '  ten  '  in  said  section  and  inserting  in  lieu  thereof 
the  words  '  five  hundred,'  so  that  said  section  when  amended  shall 
read  as  follows: 

"  Sec.  8.  That  the  treasurer  of  the  Philippine  Islands  is  hereby  au- 
thorized, in  his  discretion,  to  receive  deposits  of  the  standard  silver 
coins  of  1  ])es()  authorized  l)y  this  act  to  be  coined,  at  the  treasury 
of  the  governuHMit  of  said  islands  or  any  of  its  branches,  in  sums  of 
not  less  than  -JO  ])esos,  and  to  issue  silver  certificates  therefor  in 
denominations  of  not  less  than  2  nor  moi'e  than  500  ])esos,  and  coin 
so  deposited  shall  be  retained  in  the  treasury  and  held  for  the  pay- 
ment of  such  certificates  on  demand,  and  used  for  no  othei*  purpose. 
Such  certificates  shall  be  i-eceivable  for  customs,  taxes,  and  for  all 
public  dues  in  the  Philipjnne  Islands,  and  when  so  received  may  be 
reissued,  and  when  held  by  any  banking  associaticm  in  said  islands 
may  be  counted  as  a  part  of  its  lawful  reserve." 


a  Since  the  above  was  written  the  remainder  of  the  20,000,000  pesos  has  been 
shipped. 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  299 

Redemption  or  riiiLippiM':   Sii.vKii  Cektii-icates. 

In  Aiio-ust  last  tho  TroaRiiry  J)ppartiTionl  stated  they  were  pon- 
stantlj  havino-  IMiilipiiine  silver  certiiicates  pi-esented  for  redemption. 
As  no  provision  had  been  made  for  the  redeuii)lion  in  the  United 
States  of  Philij)i)iiie  paper  nioiicv,  the  civil  governor  was  connnnni- 
oated  with  and  authority  obtained  so  that  sueh  silver  eeilificates 
might  he  redeemed  through  both  of  the  depositary  banks,  charging 
such  bills  against  the  gold-standard  fund  on  dejWsit  with  the  bank, 
transmitting  monthly  by  registered  mail  the  certificates  to  the  insular 
treasurer  at  Manila. 

Temporary  Certificates  of  I\nEP.TEDNESs. 

Under  the  provisions  of  section  G  of  the  act  of  Congress  approved 
March  2,  190;'> — Philippine  currency  act^there  were  sold  i)rior  to 
November  1,  lOO;],  tAvo  issues  of  temi)orarv  certificates  of  indebtedness 
amounting  each  to  ii^;^,00(),000.  The  first  issue  maturing  May  1,  1904, 
was  for  the  purpose  of  establishing  a  continuing  credit  for  the  pur- 
chase of  silver  bullion.  The  proceeds  of  the  sale  of  the  second  issue, 
maturing  September  1,  1904,  Avas  for  the  maintenance  of  the  parity. 

On  October  10,  1903,  the  Philippine  Commission  passed  an  act  con- 
stituting a  gold-standard  fund  in  the  Phili[)pine  treasury,  in  the  fol- 
lowing language:  "An  act  constituting  a  gold-standard  fund  in  the 
insular  treasury  for  the  purpose  of  maintaining  the  parity  of  the  sil- 
A'er  Philippine  peso  Avith  the  gold-standard  peso,  and  organizing  a 
diA'ision  of  the  currency  in  the  bureau  of  the  insular  treasury  through 
which  such  fund  shall  l)e  maintained,  expenditures  made  therefrom, 
and  accretions  made  thereto,  and  proAdcling  regulations  for  the  ex- 
change of  currencies  and  for  the  issue  and  redemption  of  sih^er 
certificates."' 

The  first  section  of  this  act  reads  as  folloAvs: 

"  Section  1.  All  funds  in  the  insular  treasury  Avhich  are  the  pro- 
ceeds of  the  certificates  of  indebtedness  issued  under  and  by  authority 
of  section  six  of  an  act  of  Congress  entitled  "An  act  to  establish  a 
standard  of  value  and  to  provide  for  a  coinage  sj^stem  in  the  Philip- 
pine Islands,''  approA'ed  March  second,  nineteen  hundred  and  three, 
all  profits  of  seigniorage  made  by  the  insular  goA'ernment  in  the  pur- 
chase of  bullion  and  the  coinage  therefrom,  and  the  issue  of  Philip- 
pine pesos  and  the  subsidiary  and  minor  coins,  all  profits  from  the  sale 
of  exchange  by  the  insular  gOAernment  betAveen  the  Phili[)pine  Islands 
and  the  United  States  made  for  the  purpose  of  continuing  the  parity 
of  the  sih'er  Philippine  peso  Avith  the  gold-standard  peso,  and  all 
other  receipts  in  the  insular  treasury  inuring  to  the  insular  goA^ern- 
ment  in  the  exercise  of  its  functions  of  furnishing  a  convenient  cur- 
rency for  the  islands,  shall  constitute  a  separate  and  trust  fund  in  the 
insular  treasury  to  be  knoAvn  as  the  "  gold-standard  fund,"  and  to  be 
used  for  the  ])urpose  of  maintaining  the  parity  of  the  sih'er  Philij)- 
pine  peso  Avith  the  gold-standard  j^eso  j^rovided  in  the  said  act  of  Con- 
gress, ai)i)rovc(l  ]\Iarch  second,  nineteen  hundred  and  three.  Such 
fund  shall  not  be  used  to  pay  any  expenses  of  the  insular  goA^ernment 
or  to  satisfy  any  of  the  approin'iaticms  of  the  insular  goA'ernment, 
except  only  those  connected  Avith  the  purchase  of  bullion,  tho  coinage 
of  the  same  into  the  money  of  the  Philippine  Islands,  and  those 


300  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

which  are  incident  to  the  transportation  of  such  money  to  the  Phil- 
ippine Ishmds  from  the  phice  of  coinage,  to  the  putting  of  money  into 
circulation,  including  the  preparation  and  issue  of  silver  certificates, 
and  to  the  carrying  on  of  such  financial  transactions,  by  exchange 
and  otherwise,  as  may  be  authorized  by  law  to  maintain  the  circula- 
tion of  the  currency  provided  for  in  the  said  act  of  Congress  ap- 
proved March  second,  nineteen  hundred  and  three,  and  the  subsidiary 
and  minor  coinage  provided  for  by  said  act  and  by  an  act  of  Con- 
gress entitled  "An  act  temporarily  to  provide  for  the  administration 
of  the  affairs  of  civil  government  in  the  Philip})ine  Islands,  and 
for  other  purposes,"  approved  July  first,  nineteen  hundred  and  two, 
and  to  the  maintenance  of  the  parity  of  value  between  the  silver 
Philippine  peso  and  the  subsidiary  and  mirior  coins,  the  coinage  of 
Avhich  is  provided  for  by  the  acts  above  mentioned,  and  the  gold 
peso,  which  bj^  the  act  of  March  second,  nineteen  hundred  and 
three,  is  made  the  standard  of  value  in  the  Philippine  Islands: 
Provided .,  That  whenever  the  public  interest  permits  there  may  be 
withdrawn  from  the  gold-standard  fund  such  amount  as  the  Philip- 
pine government  may  deem  proper  to  pay  the  principal  and  interest 
of  all,  or  any  part  of,  the  certificates  of  indebtedness  issued  under 
section  six  of  the  said  act  of  Congress  of  March  second,  nineteen 
hundred  and  three." 

The  proceeds  of  these  two  issues,  together  with  the  seigniorage,  con- 
stituted a  gold-standard  fund. 

In  February  of  this  year  the  civil  government  of  the  Philippine 
Islands  advised  the  AVar  Department  by  cable  that  the  Philippine 
Commission  considered  it  advisable  to  take  up  the  first  issue  of  these 
certificates,  which  matured  May  1,  1904,  by  a  third  isue  of  $8,000,000. 
The  same  method  as  was  followed  in  the  advertisement  of  public  sale 
of  the  other  issues,  and  which  is  set  forth  in  detail  in  my  last  annual 
report,  was  followed  in  the  sale  of  the  new  issue.  The  Secretary  of 
the  Treasury  authorized  the  following  statement  as  to  their  recogni- 
tion by  the  Treasury  Department : 

"  These  certificates  of  indebtedness  will  be  at  once  accepted  at  par 
by  the  Treasury  Department  as  security  for  deposits  of  the  public 
money  of  the  United  States  in  national  banks  in  substitution  for 
State,  municipal,  or  Philij^pine  bonds,  and  certificates  of  indebtedness 
now  held  to  secure  such  de])osits;  and  in  substitution  for  United 
States  bonds  now  held  as  security  for  deposits,  on  condition  that  the 
Government  bonds  thus  released  be  used  as  security  for  additional 
circulation  whenever,  in  the  judgment  of  the  Secretary  of  the  Treas- 
urv,  it  is  desirable  to  stimulate  an  increase  in  national-bank  circu- 
lation." 

Bids  were  oj^ened  on  April  15,  1004,  and  it  was  found  that  the  bid 
of  the  American  National  Bank,  of  Kansas  City,  Mo.,  of  $101,181  for 
the  entire  issue  was  the  most  advantageous,  and  the  award  was  accord- 
ingly made.  This  thus  puts  the  bond  on  a  basis  a  little  over  2f  per 
cent.     This  issue  was  oversubscribed  ten  times. 

These  certificates,  like  the  former  ones,  Avere  each  for  $1,000,  and 
numbered  serially  from  (5001  to  1)000. 

The  total  proceeds  amounted  to  $8,035,430,  and  the  first  issue  of 
certificates,  numbered  from  1  to  3000,  maturing  May  1,  1904,  was  paid 
off  by  the  proceeds  of  the  last  sale  of  certificates. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       301 

On  the  7th  of  July,  1904,  Governor  Wright  advised  the  War 
Department  by  cable  that  although  the  Philippine  government  could 
without  embarrassment  i)ay  otl  and  retire  second  issue  maturing 
September  1,  1904,  it  was  thought  wise  to  make  an  additional  one  for 
that  purpose.  The  Secretary  of  the  Treasury  authorized  the  same 
statement  as  to  their  recognition  as  with  the  hist  preceding  issue. 

The  same  method  as  heretofore  was  followed  in  the  sale,  and  in 
the  presence  of  bidders,  on  October  22,  1904,  when  the  bids  were 
opened  it  was  found  that  the  bid  of  $101.41  by  M.  L.  Turner,  of 
Oklahoma  City,  Okla.,  Avas  the  most  advantageous,  which  was  accord- 
ingly accepted,  and,  with  interest  considered,  placed  the  bonds  on 
nearly  a  2^  per  cent  basis.  This  issue  was  oversubscribed  nine  times. 
These  certificates  were  numbered  from  9001  to  12000,  and  of  the  same 
denomination  as  formerly. 

The  proceeds  of  the  issue,  $3,042,?>00,  were  deposited  with  the  insu- 
lar depositary  in  New  York  City  and  were  used  to  pay  off  the  second 
issue. 

At  the  time  of  the  sale  of  these  tw^o  issues  the  money  market  was 
what  is  called  "  easy  "  or  "  a  soft  bond  market."  Expert  financiers 
anticipated  that  the  Government  could  expect  but  a  very  slight 
premium,  if  any,  and  the  sale  was  therefore  gratifying  to  the  Philip- 
pine government  and  hardly  to  be  anticipated  by  the  state  of  the 
money  market.  It  was  due  not  only  to  the  credit  of  the  Philippine 
government,  but  also  to  the  recognition  given  by  the  United  States 
Treasury  Department. 

Philippine  Land  (Friar)   Purchase  Bonds. 

In  the  past  year  the  negotiations  for  the  purchase  of  the  so-called 
friar  lands  had  resulted  in  contracts  covering  upward  of  410,000 
acres,  at  a  price  of  $7,239,000  gold. 

In  the  act  of  Congress  approved  July  1,  1902,  the  following  provi- 
sions for  the  issue  of  bonds  for  the  purchase  thereof  appears: 

"  Sec.  63.  That  the  government  of  the  Philippine  Islands  is  hereby 
authorized,  subject  to  the  limitations  and  conditions  prescribed  in  this 
act,  to  acquire,  receive,  hold,  maintain,  and  convey  title  to  real  and 
personal  property,  and  may  acquire  real  estate  for  public  uses  by  the 
exercise  of  the  right  of  eminent  domain. 

"  Sec.  64.  That  the  powers  hereinbefore  conferred  in  section  sixty- 
three  may  also  be  exercised  in  respect  of  any  lands,  easements,  appur- 
tenances, and  hereditaments  wdiich,  on  the  thirteenth  of  August, 
eighteen  hundred  and  ninety-eight,  were  owned  or  held  by  associa- 
tions, corporations,  communities,  religious  orders,  or  private  individ- 
uals in  such  large  tracts  or  parcels  and  in  such  manner  as  in  the 
opinion  of  the  Commission  injuriously  to  affect  the  peace  and  welfare 
of  the  people  of  the  Philippine  Islands.  And  for  the  purpose  of 
providing  funds  to  acquire  the  lands  mentioned  in  this  section  said 
government  of  the  Philippine  Islands  is  hereby  empow^ered  to  incur 
indebtedness,  to  borrow  money,  and  to  issue,  and  to  sell  at  not  less 
than  par  value,  in  gold  coin  of  the  United  States  of  the  present  stand- 
ard value  or  the  equivalent  in  value  in  money  of  said  islands,  upon 
such  terms  and  conditions  as  it  may  deem  best,  registered  or  coupon 
bonds  of  said  government  for  such  amount  as  may  be  necessary,  said 


302       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

bonds  to  be  in  denominations  of  fifty  dollars  or  any  mnltiple  thereof, 
bearing  interest  at  a  rate  not  exceeding  four  and  a  half  per  centum 
per  annum,  payable  quarterly,  and  to  be  payable  at  the  pleasure  of 
said  government  after  dates  named  in  said  bonds  not  less  than  five 
nor  more  than  thirty  years  from  the  date  of  their  issue,  together  with 
interest  thereon,  in  gold  coin  of  the  United  States  of  the  present 
standard  value  or  the  equivalent  in  value  in  money  of  said  islands; 
and  said  bonds  shall  be  exempt  from  the  payment  of  all  taxes  or 
duties  of  said  government,  or  any  local  authority  therein,  or  of  the 
Government  of  the  United  States,  as  well  as  from  taxation  in  any 
form  by  or  under  State,  nnuiicipal,  or  local  authority  in  the  United 
States  or  the  Philippine  Islands.  The  moneys  which  may  be  realized 
or  received  from  the  issue  and  sale  of  said  bonds  shall  be  applied  by 
the  government  of  the  Philippine  Islands  to  the  acquisition  of  the 
property  authorized  by  this  section,  and  to  no  other  purposes. 

''  Sec.  05.  That  all  lands  acquired  by  virtue  of  the  preceding  section 
shall  constitute  a  part  and  portion  of  the  public  property  of  the  gov- 
ernment of  the  Philippine  Islands,  and  may  be  held,  sold,  and  con- 
veyed, or  leased  temporarily  for  a  period  not  exceeding  three  years 
after  their  acquisition  by  said  government  on  such  terms  and  condi- 
tions as  it  may  prescribe,  sul^ject  to  the  limitations  and  conditions  pro- 
vided for  in  this  act:  Ft'orided^  That  all  deferred  payments  and  the 
interest  thereon  shall  be  payable  in  the  money  prescribed  for  the 
payment  of  principal  and  interest  of  the  bonds  authorized  to  be  issued 
in  paj'ment  of  said  lands  by  the  preceding  section,  and  said  deferred 
payments  shall  bear  interest  at  the  rate  borne  by  the  bonds.  ,  All 
moneys  realized  or  received  from  sales  or  other  disposition  of  said 
lands  or  by  reason  thereof  shall  constitute  a  trust  fund  for  the  pay- 
ment of  principal  and  interest  of  said  bonds,  and  also  constitute  a 
sinking  fund  for  the  payment  of  said  bonds  at  their  maturity.  Ac- 
tual settlers  and  occupants  at  the  time  said  lands  are  acquirecl  by  the 
government  shall  have  the  preference  over  all  others  to  lease,  pur- 
chase, or  acquire  their  holdings  within  such  reasonable  time  as  may 
be  determined  by  said  government." 

About  the  ISth  of  December,  lOO;^,  the  civil  governor  of  the  Philip- 
pine Islands  notified  the  War  Department  of  the  closing  of  the  con- 
tract, which  had  the  a]:>proval  of  the  Secretary  of  War,  and  the 
question  of  issuance  of  bonds,  what  kind  they  should  be,  amount, 
denominations,  and  the  various  details  as  to  engraving,  printing,  pay- 
ment, interest,  and  all  other  information  necessary  to  their  advertise- 
ment and  sale  was  taken  np  by  cable.  Much  work  was  necessary  to 
make  decision  and  work  out  all  these  details.  All  the  experts  of  the 
various  bureaus  of  the  Treasury  Department  had  to  be  consulted,  and 
as  well  Avas  it  necessary  to  gain  practical  information  as  to  the  best 
method  of  floating  these  bonds,  which  information  was  as  kindly  fur- 
nished by  exj)ert  financiers  of  New  York  houses  comiected  with  bond- 
ing (companies  as  it  was  by  the  experts  of  the  Treasury  Department. 

Registered  bonds  Avere  determined  uj)on.  It  AA-as  believed  unwise 
to  open  a  sei)arate  registering  office  in  the  Bureau  of  Insular  Affairs, 
if  the  Phili[)i)ine  goAcnnnent  could  make  use  of  the  expert  Register 
Office  of  the  Treasury  Dejiartment.  The  Secretary  of  the  Treasury, 
on  the  request  of  the  Secretary  of  War,  kindly  undertook  this  AA'Ork, 
as  AA^ell  as  the  payment  by  the  Treasurer  of  the  interest  on  the  bonds, 


GOLD  STANDARD  TN  INTERNATIONAL  TRADE.       303 

tlio  niothod  l)ciiii>'  (o  transfer,  (lirouiih  the  disbiirsin<>-  officer  of  this 
Bureau,  to  the  Treasury  Department  the  amount  of  Phili})pine  money 
that  "was  necessary  to  meet  these  payments.  In  coming  to  this  con- 
chision  it  became  necessary  for  the  Secretar}'  of  the  Treasury  and  the 
Secretary  of  AVar  to  ask  the  opinion  of  the  Attorney-Cxeneral  as 
to  the  construction  of  certain  hniguage  of  the  above  section,  which 
opinion  is  embodied  in  the  aj^pendix. 

The  Piuli])piiie  goNermnent  limited  the  issue  to  $7,000,000,  since 
the  indications  were  that  the  premium  woukl  easily  cover  the  addi- 
tional contract  amount. 

Accordingly,  on  December  ;^0,*100I5,  a  circular  was  issued  announc- 
ing that  the  bonds  Avould  be  dated  P^ebruary  1,  190-t,  bearing  interest 
at  4  i)er  cent,  payable  quarterly,  redeemable  at  the  pleasure  of  the 
Philipi)ine  government  after  ten  years,  and  payable  in  thirty  years 
after  date  of  issue  in  gold  coin  of  the  United  States;  both  principal 
and  interest  being  payable  at  the  Treasury  of  the  United  States;  that 
the  bonds  would  be  registered  and  transferable  at  the  office  of  the  Reg- 
ister of  the  Treasury ;  that  they  should  be  in  denominations  of  $10,000 
ami  $1,000  in  proportion  to  suit  the  purchaser  or  purchasers;  that 
bids  would  be  opened  fJanuary  11,  11>04,  and  delivery  of  interim  certifi- 
cates made  February  1,  1904,  for  which  the  engraved  bonds  would  be 
substituted  later. 

The  Secretary  of  the  Treasury  authorized  the  statement — 

''  That  the  Philippine  land-purchase  bonds  Avill  be  accepted  at  par 
as  security  for  deposits  of  public  money,  should  further  deposits  be 
made;  and  may  be  sul^stituted  for  (lovernment  bonds  now  held  as 
security  for  deposits  on  condition  that  the  (lovernment  lionds  thus 
released  be  used  as  security  for  additional  circulation  whenever,  in 
the  judgment  of  the  Secretary  of  the  Treasury,  it  is  desirable  to  stim- 
ulate an  increase  in  national-bank  circulation." 

This  circular  was  given  the  widest  publicity  in  the  United  States 
and  in  Manila.  When  the  bonds  were  opened  on  January  11,  1904, 
they  were  found  to  contain,  in  all,  tenders  for  $33,237,000. 

The  most  advantageous  bid  was  found  to  be  the  joint  one  of  Harvey 
Fisk  &  Sons,  Fisk  &  Robinson,  and  the  National  City  Bank  of  New 
York,  of  $107,577  for  the  entire  $7,000,000,  and  they  were  accordingly 
awarded  the  bonds.  The  premium  realized  was  thus  1:^530,390,  which 
more  than  justified  the  decision  to  limit  the  issue  to  $7,000,000. 

The  money  was  equally  divided  between  the  two  Philippine  deposi- 
taries in  the  United  States,  with  interest  for  the  six  months  period 
contemplated  in  the  contract  of  purchase  at  the  rate  of  3^  per  cent. 
The  bonds  were  thus  floated  at  practically  3  per  cent.  But"$2.000,000 
of  this  amount  has  been  ])aid  out.  This  $2,000,000,  at  the  request  of 
the  title  holder,  is  awaiting  payment  in  London. 

The  examination  of  the  titles  of  all  the  friar  lands  have  been  con- 
cluded. The  survey  of  the  British-Manila  Estates  Company  (Lim- 
ited) has  been  accepted  by  its  representative,  and  $200,000  have  been 
paid  from  the  friar  fund  in  New  York,  and  $98,782.07  paid  in  cash  in 
Manila. 

These  estates  include  the  two  haciendas  of  San  Juan  and  San  Nico- 
las, in  the  tovv-n  of  Tmus  (usually  known  as  the  "  Imus  estate"),  in 
the  province  of  Cavite,  consisting  of  18,419  hectares,  56  ares,  and  12 
centares,  formerly  the  property  of  the  Recoletos  order  in  the  Philip- 
pines. 


304       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

Likewise  the  survey  of  the  estates  called  Sociedad  Agricola  de 
Ultramar  have  been  accepted  by  its  representative.  This  includes 
the  former  estates  of  the  Augustinian  order  in  the  Philippines,  com- 
prising some  IS  different  haciendas  or  estates,  of  which  the  purchase 
price  was  some  $2,212,404.  Two  million  dollars  of  this  amount  have 
been  transferred  from  New  York  to  London,  in  accordance  with  and 
awaiting  the  demand  of  its  representative,  and  the  balance  was  paid 
in  Manila. 

In  the  case  of  the  Philippine  Sugar  Estates  Development  Company 
(Limited),  comprising  the  lands  formerly  owned  by  the  Domican 
order,  a  joint  survey  of  several  of  tile  haciendas,  which  the  govern- 
ment survey  had  shown  to  be  short  to  the  amount  of  the  value  of 
several  hundred  thousand  dollars,  has  been  requested  by  the  govern- 
ment. Again,  questions  have  arisen  as  to  the  titles  of  the  large 
haciendas  of  Binan,  Santa  Rosa,  Santa  Cruz  de  Malabon,  together 
with  a  portion  of  Lolomboy. 

It  is  the  opinion  of  the  government  attorney  who  examined  the 
titles  that  the  title  was  in  a  separate  and  independent  foundation, 
which  had  never  joined  in  the  conveyance.  The  amount  of  the  pur- 
chase price  aggregates  $3,671,657,  to  be  definitely  determined  accord- 
ing to  the  resurvey. 

Pay  for  that  part  of  these  estates  as  to  which  there  is  no  doubt  has 
been  offered,  as  well  as  a  proposition  to  bring  the  titles  in  dispute 
before  the  courts.  The  government  is  anxious  to  gain  complete  pos- 
session of  these  lands  to  parcel  them  out,  not  only  in  order  that  the 
transaction  should  be  completed,  but  also  that  the  land  may  be  earning 
legitimate  revenue  for  the  friar  land  fund. 

Depositaries  of  Philippine  Funds. 

The  Guaranty  Trust  Company  and  the  International  Banking  Cor- 
poration remain  the  two  depositaries  of  insular  funds  in  New  York. 
The  latter  bank  maintains  a  branch  office  in  Washington  and  also  in 
Manila.  The  same  two  English  corporations — the  Hongkong  and 
Shanghai  Banking  Corj^oration,  and  the  Chartered  Bank  of  India, 
Australia,  and  China — continue  as  depositaries  in  Manila  of  insular 
funds.  All  such  funds  are  secured  by  bonds  with  the  American 
Surety  Company  of  New  York  and  the  Fidelity  and  Deposit  Com- 
jjany  of  Maryland.  These  two  surety  companies  have  also  contracts 
for  Ijonding  all  insular  employees  Avho  disburse  moneys. 

The  treasury  of  the  Philippine  Islands  still  remains  the  only  depos- 
itary designated  under  the  act  of  July  1,  1902,  of  the  public  moneys 
of  the  United  States  in  the  Philippine  Islands. 

The  following  statements  will  indicate  the  business  with  these  banks 
in  the  United  States  as  depositaries  of  the  funds  of  the  civil  govern- 
ment of  the  Philippine  Islands : 


GOLD  STANDARD  IN"  INTERNATIONA l!  TRADE. 


305 


Statement  of  the  aecoiiiit  of  the  Giiarcniti/  Trust  Company  of  New  York  in  account 
with  the  civil  government  of  the  Philippine  Islands,  October  31,  1904- 


Debtor. 

Creditor. 

Balance  Oct.  .'?1,  1901!: 
Gold  standard 

fund $H,  146, 00:3. 61 

Congressional 

relief  fund..          82,033.60 

Deposits: 

Treasurer  of  the  United 
States - 

Land  purchase  bond  ac- 
count   - 

Certificates  of  indebtedness. 

Proceeds,  sale  proof  coin  sets . 

J.  G.  Jester,  disbursing 
agrent 

C.  H.  Whipple 

American  National  Bank, 
Kansas  City 

M.  L.  Turner,  bond  award. 

Cash  for  drafts  issued 

Auditor  for  War  Depart- 

$:!,*JS,o:i7.:50 

8,80.5,922.7" 

1.50,000.00 

6,017,730.(10 

7,4.5().00 

140,019.48 

2.58.  (H) 

3(1, 000.  (K) 

:{0,(HX).(K) 

1,1:58,352.29 

,58.  .38 

1.3,782.95 

8,661.82 
183,5:».08 

""19, 7.53, 809. 07 

Withdrawals: 

Insular  treasurer's  transfer 

$3,896,8.53.39 

Transferred  to  London  0  n 
friar  lands  account 

Treasurer  of  the  United 
States 

2,000,000.00 

70,000.00 

8,590,000.00 

306,490.22 

6,000.00 

;36,86.3.78 

(iO,00(J.OO 

James  G.  Jester,  disbursing 

agent,  Washington,  D.  C... 

Carson  Taylor,  disV)ursing 

office,  exposition  board 

M.  P.  Hoaly,  disbursing 

office,  exposition  board 

J.   S.   Manning,    disbursing 

office,  constabulary 

Thos.  Hardeman,  disbursing 
office,  honorary  commis- 

.sion 

Balance  due  the  insular  gov- 
ernment- 
Friar  lands 

bond  fund  ,S1,76<1,2:{8.07 
Gold  stand- 
ard fund.    2,141,198.67 
General 
fund 880,164.94 

Superintendent  of  mint, 
Philadelphia.          

Superintendent  of  mint,  San 
Francisco 

4,787,601.68 
19,753,809.07 

Balance  Oct  ^1,  '904 

4,787,601.68 

Statement  of  the  account  of  the  International  Banking  Corp^,ratioyi  at  Wash- 
ington, D.  ('.,  in  account  with  the  civil  government  of  the  Philippine  Islands. 


Debtor. 

Creditor. 

Deposits: 

Treasury   of    the  United 
States 

$4,145,187.00 
10,000.00 
2,668.77 

20.00 
83,024.16 

Withdrawals,  J.  G.  Jester,  dis- 
bursing agent,  Washington  . . 
Balance  due  the  insular  gov- 
ernment: 
General  f und .      $131 ,  .556. 86 
Friar  lands 
bond  fund  . .    3, 666, 343. 07 

$443,000.00 

United  States  Quartermas- 
ter's Department 

Miscellaneous  receipts  and 
refunds. 

Proceeds  from  damaged  $20 
note  received  from  treas- 
urer, Philippine  Islands . . . 
Interest  on  dejjosits _ 

3,797,899.93 

4,240,899.93 

4,240,899.93 

Balance  Oct.  31, 1904 

3,797,899.93 

Mention  has  already  been  made  of  the  fact  that  the  money  realized 
from  the  sale  of  the  land  piircliase,  or  friar  bonds,  was  equally  divided 
between  the  two  depositaries  in  the  United  States  at  the  rate  of  3^  per 
cent  for  a  period  of  six  months,  and  at  the  end  of  that  period,  which 
Avas  about  June  22,  1904,  the  banks  represented  that  they  Avere  not 
justified  in  paying  that  rate  of  interest  thereafter  on  account  of  the 
large  amount  of  read}^  money  in  the  market  at  that  time,  as  well  as 
the  fact  tliat  this  money  was  virtually  on  call  by  the  Philippine  gov- 
ernment. The  Philippine  government  acquiesced  and  the  interest 
was  accordingly  reduced. 

S.  Doc.  128,  58-3 20 


306 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 


The  unpaid  balance  of  the  so-called  friar  money  is  on  call  with  the 
Guaranty  Trust  Company  at  2  per  cent  and  Avith  the  International 
Banking  Corporation  at  2^  per  cent,  under  the  condition  of  fifteen 
days'  notice  of  withdrawal. 

For  the  same  reasons  the  interest  on  the  gold-standard  fund  with 
the  Guaranty  Trust  Company  Avas  reduced  from  3i  to  2i  per  cent,  the 
relief  fund  from  3^  to  2.^  per  cent,  the  Treasurer's  general  account  is 
2  per  cent  Avith  both  the  Guaranty  T'rust  Company  and  the  Interna- 
tional Banking  Corporation,  being  reduced  from  8  per  cent,  and  the 
funds  to  the  credit  of  the  disbursing  agent  of  this  Bureau  is  2  jjer  cent 
Avith  both  banks. 

Interest  on  Philippine  funds  deposited  tcith  the  Guaranty  Trust  Company  of  New 
York  and  the  International  Banking  Corporation,  New  York  (also  Washington 
branch),  October  1,  1903,  to  September  30,  1904. 


Fund. 

Guaranty 
Trust  Co.  of 
New  York. 

International 

Banking 
Corporation. 

Total. 

Friar  land ... 

$71,043.07 
76,259.a5 
18,371.28 
8,250.93 
9,605.46 

$77,262.70 

$148,305.77 

Gold  standard _ 

76, 2.59. 35 

Treasurers'  general  account .  _  _ _ 

1,811.13 
3,950.33 

20, 182. 41 

Disbursing  agent,  Philippine  revenues  .  

12,201.25 

Relief 

9, 605. 46 

Total 

183,530.08 

83,024.16 

266,554.24 

Note. — Interest  on  dissbursing  agent's  funds  is  credited  to  general  account  of  treasurer. 

METHOD  OF  TRANSFER  OF  FUNDS  BETAVEEN  THE  UNITED  STATES  AND  THE 

PHILIPPINE  ISLANDS. 


The  gold-standard  act  proA^des  that  the  insular  treasury  or  the 
Philippine  dej^ositaries  in  the  United  States  may  sell  on  demand,  in 
sums  of  not  less  than  10,000  pesos,  or  $5,000,  exchange  against  the 
gold-standard  fund,  charging  for  the  same  a  premium  of  three-quar- 
ters of  1  per  cent  for  demand  drafts  and  1^  per  cent  for  telegraphic 
transfers.  Under  the  discretionary  poAAer  of  the  same  act,  the  secre- 
tary of  finance  and  justice  of  the  Philippine  Islands  has  but  recently 
changed  these  rates,  respect iA^ely,  to  three-eights  of  1  per  cent  and 
three-quarters  of  1  per  cent,  AAhich  affords  a  cheap  method  for  the 
transfer  of  funds  both  AAays  AAithout  actual  transportation  of  the 
money. 

When  the  Philippine  goA'crnment  desired  to  increase  the  money  on 
deposit  Avith  the  Ncav  York  depositaries,  it  has  been  accomplished  by 
taking  ad\^antage  of  the  A^'ar  and  NaA^y  departments'  desire  to  trans- 
fer United  States  money  belonging  to  any  of  their  bureaus  from  the 
United  States  to  the  Philippines.  The  method  being  followed  is  to 
notify  the  civil  goA^ernor  by  cable  of  the  bureau  desiring  transfer  and 
the  amount  to  be  deposited  in  the  treasury  of  the  Philippine  Islands, 
as  depositary  of  the  United  States.  The  Philippine  treasurer,  when 
that  has  been  accomplished,  informs  by  cable  the  Treasurer  of  the 
United  States,  aa'Iio  in  turn  transmits  an  equal  amount  to  such  Philip- 
pine depositary  as  this  I>ureau  designates  in  Ncaa'  York,  and  then  the 
amount  so  placed  Avith  the  treasurer  of  the  Philippine  Islands  is  sub- 
ject to  the  directions  of  the  Treasurer  of  the  United  States. 


GOLD    STANDARD    IN    INTP^RNATIONAL    TRADE.  307 

3.  AN  ACT  I  No.  10121  FOR  THE  rURPOSE  OF  MAINTAINING  THE  PAR- 
ITY OF  THE  I'lIlLll'I'lNES  (T'RRENCY  IN  ACCORDANCE  WITH 
THE  I'ROVISIOXS  OF  SECTIONS  ONE  AND  SIN  OF  THE  ACT  OF 
C0N(;RESS  approved  march  second.  NINETEEN  HUNDRED 
AND  THREE,  BY  PR01IIBITIN(i  THE  IMPORTATION  INTO  THE 
PHILIPPINE  ISLANDS  OF  CERTAIN  KINDS  OF  COINS. 

By  authoriti/  of  the  I'lilfcd  States^  be  it  enacted  hij  the  Philippine 
Commission,  that : 

Section  1.  The  import  at  ion  into  the  Philippine  Ishmds  of  Mexi- 
can currency,  Spanish-Filipino  currency,  or  any  other  metallic  cur- 
rency Avhich  is  not  upon  a  i>-old  basis,  is  hereby  prohibited ;  and  any  of 
the  aforementioned  currencies  Avhich  are  im|)orte(l,  or  of  which  the 
im])ortation  is  atten.ipted,  contniry  to  the  ])r()visions  of  this  act,  shall 
be  liable  to  forfeiture,  under  due  process  of  law,  the  bullion  value,  in 
terms  of  Phini)[)ines  currency,  of  one-third  of  the  sum  so  forfeited  to 
be  payabk^  to  the  person  upon  whose  information,  given  to  the  proper 
authorities,  the  seizure  of  the  money  so  forfeited  is  made,  and  the 
other  two-thirds  to  be  payable  to  the  Philippine  government,  and  to 
accrue  to  the  gold-standard  fund  :  Prodded^  That  money  actually  on 
shipboard  in  transit  to  the  Philippine  Islands,  and  for  which  bills 
of  lading  have  been  made  out  on  or  prior  to  the  date  of  the  passage 
of  this  act,  shall  be  permitted  to  enter:  And  prorided  fitfther.  That 
each  first-class  passenger  shall  be  i)erinitted  to  bring  into  the  Philip- 
pine Islands  a  sum  of  the  aforementioned  currencies  not  exceeding 
in  value  fifty  Philipi)ine  pesos;  each  second-class  passenger  a  sum 
not  exceeding  twenty  Pliilippine  pesos;  and  each  third-class  passen- 
ger a  sum  not  exceeding  ten  Philippine  pesos. 

Sec.  2.  The  importation  or  the  attempt  to  import  any  of  the  said 
currencies  contrary  to  law  is  hereby  declared  a  criminal  offense,  pun- 
ishable, in.  addition  to  the  forfeiture  of  said  currency  as  above  pro- 
vided, by  a  fine  of  not  more  than  ten  thousand  pesos  or  imprisonment 
for  a  period  not  exceeding  one  year,  or  both,  in  the  discretion  of  the 
court. 

Sec.  3.  The  provisions  of  section  one  of  this  act  shall  be  enforced 
by  the  collector  of  customs  of  the  Philippine  Islands  in  accordance 
wijh  the  ]:)rovisions  of  act  nu]nl)ered  three  hundred  and  fifty-five,  as 
amended  by  act  numbered  eight  hundred  and  sixty-four,  except  that 
currency  seized  and  forfeited  under  the  provisions  of  this  act  shall 
not  be  sold  at  auction,  but  shall,  as  provided  in  section  one  of  this  act, 
be  paid  into  tlie  treasury  of  the  I*hili[)pine  Islands  to  the  credit  of  the 
gold-standard  fund,  and  the  sum  due  to  the  informer  shall  be  paid 
in  Philippines  currency  by  the  treasurer  from  that  fund. 

Sec.  4.  This  act  shall  take  effect  on  its  passage. 

Enacted,  January  II,  1001. 


308  GOLD    STANDARD    IN    INTERNATIONAL   TRADE. 

4.  AN  ACT  (No.  1045)  FOR  THE  PURPOSE  OF  PROVIDING  REVENUE  AND 
OF  MAINTAINING  THE  PARITY  OF  THE  PHILIPPINES  CURRENCY 
IN  ACCORDANCE  WITH  THE  PROVISIONS  OF  SECTIONS  ONE  AND 
SIX  OF  THE  ACT  OF  CONGRESS  APPROVED  MARCH  SECOND, 
NINETEEN  HUNDRED  AND  THREE,  BY  PROVIDING  FOR  THE  PUR- 
CHASE OF  MEXICAN  DOLLARS  AS  BULLION,  BY  IMPOSING  A  TAX 
UPON  WRITTEN  CONTRACTS  PAYABLE  IN  CERTAIN  KINDS  OF 
CURRENCIES,  AND  BY  REQUIRING  THE  PAYMENT  OF  A  LICENSE 
TAX  BY  ALL  PERSONS,  FIRMS,  OR  CORPORATIONS  CONDUCTING 
THEIR  CURRENT  BUSINESS,  EITHER  WHOLLY  OR  IN  PART,  IN 
SAID  CURRENCIES,  AND  FOR  OTHER  PURPOSES. 

By  autliorUy  of  the  United  States^  he  it  enacted  hy  the  Philippine 
Commission,  that : 

Section  1.  For  tho  purpose  of  this  act,  the  expression  "  local  cur- 
rency "  shall  signify  Mexican  coins,  Spanish  and  Spanish-Filipino 
coins,  and  all  other  metallic  moneys  not  upon  a  gold  basis  in  circula- 
tion in  the  Philippine  Islands,  and  bank  notes  pa3'able  in  said  moneys. 

Sec.  2.  The  secretary  of  finance  and  justice  is  hereby  authorized, 
whenever  in  his  judgment  the  public  hiterest  may  require,  to  direct 
the  insular  treasurer  and  all  provincial  and  municipal  treasurers 
to  purchase  Mexican  dollars  as  bullion  at  their  bullion  value,  said 
value  to  be  determined  from  time  to  time  by  the  insidar  treasurer, 
with  the  approval  of  the  secretary  of  finance  and  justice.  The  cost 
of  the  bullion  so  purchased  shall  be  a  proper  charge  against  the  gold- 
standard  fund,  and  the  money  coined  therefrom  shall  accrue  to  that 
fund. 

Sec.  3.  A^^ienever  any  contract,  debt,  or  obligation,  payable  by  the 
terms  thereof  in  local  currency,  is  sought  to  be  enforced  in  any  court 
and  the  right-of  the  plaintiff  is  established,  it  shall  be  the  duty  of  the 
court  to  render  judgment  for  the  plaintiff  to  recover  as  damages  the 
lawful  sum  due  to  him,  in  Philippine  ]:)esos,  instead  of  in  the  currency 
mentioned  in  the  contract,  debt,  or  obligation.  For  the  purpose  of 
determining  the  amount  of  such  judgment,  the  court  shall  receive 
evidence  as  to  the  real  and  just  value  in  Philippines  currency  of  the 
currency  named  in  the  contract,  debt,  or  obligation,  including  evi- 
dence of  the  local  market  value  of  such  currency,  its  value  in  neigh- 
boring countries  as  currency,  its  value  in  the  great  markets  of*  the 
world,  its  bullion  value,  and  any  other  facts  necessary  to  determine 
its  true  value.  The  local  market  value,  whether  affected  by  the  pro- 
hibition of  the  importation  of  such  currency  or  by  other  causes,  shall 
not  be  conclusive  evidence  of  the  amount  of  the  judgment  to  be  ren- 
dered in  such  cases.  Payment  of  a  judgment  thus  rendered  shall 
extinguish  all  liability  on  the  contract,  debt,  or  obligation. 

Sec.  4.  Whenever  any  contract,  debt,  or  obligation  is  made  pay- 
able in  local  currency,  the  debtor  or  person  under  obligation  to  make 
payment  may  tender  to  the  creditor  in  lieu  of  such  currency  the  just 
amount  due  thereon  in  Phili])pine  pesos,  computed  in  the  manner 
stated  in  the  preceding  section,  and  the  effect  of  such  tender  shall  be 
the  same  as  though  the  tender  had  been  made  in  the  kind  of  currency 
named  in  such  contract,  debt,  or  obligation. 

Sec.  5.  The  two  last  preceding  sections  shall  apply  to  all  contracts, 
debts,  or  oljligations  made  before  the  passage  of  this  act,  as  well  as  to 
those  made  subsequent  thereto. 

Sec.  G.  Every  check,  note,  draft,  1)ond,  bill  of  exchange,  and  every 
contract  whatsoever,  payable  wholly  or  in  part  in  local  currency  and 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       309 

drawn  or  made  upon,  or  subsequent  to,  October  first,  nineteen  hun- 
dred and  four,  shall  bear  upon  its  face  an  internal-revenue  stamp  or 
stamps  of  a  face  value  in  Philippines  currency  to  the  amounts  herein- 
after provided,  said  stamp  oi-  stamps  to  be  properly  canceled  at  the 
signing  of  said  check,  note,  draft,  bond,  bill  of  exchange,  or  contract 
with  the  initials  of  one  of  the  ])arties  thereto  and  the  date  of  the 
transaction.  The  rates  of  the  stamp  tax  required  upon  every  check, 
note,  draft,  bond,  bill  of  exchange,  and  upon  every  written  contract 
Avhatsoever,  jiayable  wholly  or  in  part  in  local  currency,  exce})t  as 
otherwise  provided  in  this  act,  shall  be  as  follows: 

(1)  An  ad  valorem  I'ate  of  one  per  centum  levied  in  Philippines 
currency  upon  the  face  value  in  local  currency  of  each  aforemen- 
tioned instrument  drawn  or  made  during  the  month  of  October,  nine- 
teen hundred  and  four. 

(2)  An  ad  valorem  rate  of  two  per  centum  levied  in  Philippines 
currency  upon  the  face  value  in  local  currency  of  each  aforemen- 
tioned instrument  drawn  or  made  during  the  month  of  November, 
nineteen  hundred  and  four. 

(3)  An  ad  valorem  rate  of  three  per  centum  leaded  in  Philippines 
currency  upon  the  face  value  in  local  currency  of  each  aforemen- 
tioned instrument  drawn  or  made  during  the  month  of  December, 
nineteen  hundred  and  four. 

(4)  An  ad  valorem  rate  of  five  per  centum  levied  in  Philippines 
currency  upon  the  face  value  in  local  currency  of  each  aforemen- 
tioned instrument  drawn  or  nuule  subsequent  to  Deceml)er  thirty-first, 
nineteen  hnndred  and  four. 

Pforidcd,  That  the  aforementioned  tax  shall  not  be  collected  upon 
the  following: 

(a)  Checks,  drafts,  or  bills  of  exchange  drawn  against  a  deposit 
of  local  currency  and  made  payable  to  a  person,  firm,  or  corporation, 
or  made  payable  to  a  bank  and  used  in  the  purchase  of  a  draft  or  bill 
of  exchange  })ayal>le  to  a  person,  firm,  or  corporation,  in  settlement 
either  wholly  or  in  part  or  a  bona  fide  specific  debt  payable  in  local 
currency  by  the  depositor  and  contracted  in  writing  or  I'educed  to 
Avriting  prior  to  the  first  day  of  October,  nineteen  hundred  and  four. 

(h)  Checks,  drafts,  or  bills  of  exchange  payable  in  local  currency 
and  presented  to  a  bank  for  deposit,  paj^ment,  or  sale  bj^  a  creditor 
who  has  received  the  same  in  payment  of  a  bona  fide  specific  debt 
payable  in  local  currency,  contracted  in  writing  or  reduced  to  writing 
prior  to  the  first  day  of  October,  nineteen  hunch'ed  and  four. 

(r)  Deposit  receii)ts,  or  other  evidences  of  deposits  of  local  cur- 
rency, given  by  a  bank  or  other  corjjoration  or  ])erson  to  any  person, 
firm,  or  corj^oration  making  a  deposit  of  local  currency,  in  accordance 
with  the  provisions  of  this  Act,  and  for  the  ])urpose  of  providing 
funds  for  the  payment  of  bona  fide  specific  obligations  ])ayable  in 
local  currency  and  contracted  in  writing  or  reduced  to  writing  prior 
to  the  first  day  of  October,  nineteen  hundred  and  four. 

{(1)  Checks,  drafts,  notes,  bills  of  exchange,  and  contracts  of  any 
kind,  the  purpose  and  effect  of  which  is  the  prompt  shipment  out  of 
the  Philippine  Islands  of  the  amount  of  Mexican  currency  the  pay- 
ment of  which  is  called  for  in  said  check,  draft,  note,  bill  of  exchange, 
or  contract  of  an}'  kind. 

(e)  Checks,  drafts,  notes,  bills  of  exchange,  and  contracts  of  any 
kind,  the  purpose  and  effect  of  which  is  the  prompt  transfer  of  local 


310       GOLD  STAKDAED  IK  INTERNATIONAL  TRADE. 

currency  to  the  government  of  the  Philippine  Islands  in  accordance 
with  the  provisions  of  law. 

(/)  Contracts  of  any  character  whatsoever  whose  sole  purpose  and 
effect  is  the  transference  of  a  local-currency  account  to  a  Philippines- 
currency  basis. 

(g)  Checks,  drafts,  or  bills  of  exchange  payable  onl}^  in  a  foreign 
country. 

Sec.  7.  Every  transfer  of  ownership  by  indorsement  or  otherwise 
after  Sej^tember  thirtieth,  nineteen  hundred  and  four,  of  a  check, 
draft,  note,  bond,  bill  of  exchange,  or  any  contract  whatsoever,  pay- 
able wholly  or  in  part  in  local  currency  in  the  Philippine  Islands  after 
September  thirtieth,  nineteen  hundred  and  four,  except  such  instru- 
ments as  are  specified  in  subsections  («),  (h),  (c-),  (d),  {e),  (/),  and 
(g)  oi  section  six,  shall  be  considered  a  separate  and  distinct  contract, 
and  as  such  shall  require  a  stamp  or  stamps. 

Sec.  8.  A  tax  of  one  per  centum  per  month,  i:)ayable  quarterly,  in 
Philippines  currency,  shall  be  levied  upon  the  average  daily  balance 
of  each  deposit  of  local  currency  held  after  December  thirty-first, 
nineteen  hundred  and  four,  by  any  bank,  corporation,  or  individual 
receiving  deposits  in  the  Philippine  Islands,  and  it  shall  be  the  duty 
of  every  bank,  corporation,  or  individual  receiving  deposits  in  the 
Philippine  Islands,  which  shall  receive  or  continue  local-currency 
clejDosits  after  December  thirty-first,  nineteen  hundred  and  four,  to 
furnish  the  collector  of  internal  revenue,  Avithin  ten  daj^'s  after  the 
beginning  of  each  quarter  of  the  calendar  year,  a  statement  of  the 
names  and  addresses  of  holders  of  local-currency  deposits  held  by 
them  during  the  preceding  quarter,  together  with  the  average  daily 
balance  of  each  deposit,  respectively,  for  each  month  of  said  quarter, 
and  such  other  information  as  the  collector  of  internal  revenue  shall 
require  for  the  proper  administration  of  this  Act;  and  it  shall  be  the 
further  duty  of  such  banks,  corporations,  or  individuals  to  pay  said 
tax  to  the  collector  of  internal  revenue  within  thirty  days  after  the 
beginning  of  each  quarter  of  the  calendar  year,  deducting  the  amount 
of  the  tax  from  the  depositor's  account.  The  tax  receipt  of  the  col- 
lector of  internal  revenue  shall  be  a  suflicient  voucher  for  the  bank, 
corporation,  or  individual  as  to  the  proper  use  of  the  monej^,  and  shall 
be  accepted  by  the  depositor  as  money  paid.  Such  average  daily 
balance  shall  be  calculated  by  adding  together  the  sums  of  deposit 
to  the  credit  of  the  depositor  at  the  close  of  each  business  day  in  said 
month  and  dividing  the  sum  so  obtained  by  the  number  of  days 
upon  which  said  deposit  Avas  held:  Provided^  That  any  person  Avish- 
ing  to  maintain  a  local-currency  deposit  after  December  thirty-first, 
nineteen  hundred  and  four,  for  the  purpose  of  keeping  funds  for  the 
payment  at  a  future  date  of  a  bona  fide  specific  local-currency  obliga- 
tion contracted  in  Avriting  or  reckiced  to  Avriting  prior  to  October  first, 
nineteen  hundred  and  four,  may,  by  obtaining  in  advance  the  express 
permission  in  Avriting  of  the  secretary  of  finance  and  justice,  and  hav- 
ing the  same  registered  Avith  the  collector  of  internal  revenue  or  his 
dej)uty,  maintain  such  a  deposit  up  to  the  time  of  the  maturity  of  said 
local-currency  obligation  without  paying  the  aforementioned  tax. 

Sec.  i).  Every  check,  draft,  note,  bond,  bill  of  exchange,  and  CA-ery 
contract  AvhatsoeA^er  i)ayable  in  local  ciii-rency,  and  CA^ery  deposit  so 
payaljle  shall  be  presumably  subject  to  the  taxes  levied  in  accordance 
Avith  the  jn-ovisions  of  this  act;  and  the  obligation  shall  rest  upon 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       311 

the  drinver  or  maker,  holder  or  heneliciary,  and,  in  case  of  transfer  by 
indorsement,  upon  eaeh  in(U)rHer,  indorsee,  or  holder  of  said  check, 
draft,  note,  bond,  bill  of  exchan<^e,  or  bank  deposit,  who  claims  ex- 
emption, to  i^rove  that  he  is  entitled  to  any  of  the  exem})tions  pro- 
vided in  this  act.  No  check,  draft,  note,  bond,  bill  of  exchange,  or 
any  contract  whatsoever,  payable  in  local  currency,  shall  be  exempted 
from  (he  payment  of  the  stamj)  tax  i)r()vided  for  in  sections  six  and 
seven  of  this  act,  unless  the  contract  for  which  exemption  is  claimed 
shall  be  registered  with  the  collector  of  internal  revenue  or  his  deputy 
before  October  first,  nineteen  hundred  and  four,  and  a  certificate  be 
attached  thereto  by  the  collector  of  internal  revenue  or  his  deputy 
certifying  the  exemption;  and  no  deposit  of  local  currency  shall  hd 
exempted  from  the  payment  of  the  tax  on  bank  deposits  as  provided 
in  sections  eight  and  nine  of  this  act  unless  the  exemption  is  obtained 
as  herein  provided,  together  with  a  certificate  certifying  the  same, 
prior  to  frainuiry  first,  nineteen  hundred  and  five. 

Sec.  10.  Ever}'  check,  draft,  note,  bond,  bill  of  exchange,  and  every 
contract  whatsoever  which  is  not  properly  stamped  in  accordance 
with  the  provisions  of  this  act  shall  be  void,  and  every  person,  firm, 
bank,  or  corporation  who  gives  or  receives  such  check,  draft,  note, 
bond,  bill  of  exchange,  or  contract  which  is  subject  to  the  stamp  tax 
imder  this  act  without  its  being  properly  stamped,  or  who  shall 
receive  or  keep  a  de[)osit  of  local  currency  or  make  such  a  deposit 
without  observing  the  provisions  of  this  act,  shall  be  guilty  of  a 
criminal  offense,  and  shall  be  lialjle  to  a  fine  not  exceeding  the  face 
value  in  Philipi)ines  curi'enc}'  of  fifty  per  centum  of  the  number  of 
jx'sos  of  local  currency  called  for  in  said  check,  draft,  note,  bond,  bill 
of  exchange,  or  contract,  or  of  the  deposit  so  kept. 

Sec.  11.  (a)  All  i:)ersons,  firms,  or  corporations  who  engage  in  any 
business  whatsoever  in  the  Philippine  Islands  after  December  thirty- 
first,  nineteen  hundred  and  four,  and  make  use  of  local  currency  to 
any  extent  whatever  in  either  buying,  selling,  or  renting  goods,  prop- 
erty, or  services  must,  previously  to  engaging  in  such  business  and 
amuially  thereafter,  in  addition  to  the  other  licenses  now  required  by 
law,  oljtain  a  license  from  the  collector  of  internal  revenue  in  the 
manner  ])rescribed  in  the  provisions  of  the  industrial-tax  law  for  the 
issuance  of  industrial  licenses:  Provided,  That  persons,  firms,  banks, 
or  other  corporations  may  deal  in  checks,  drafts,  notes,  bonds,  bills  of 
exchange,  and  contracts  which  are  mentioned  in  paragraphs  (a),  (&), 
(c),  ((/),  (e).  (/),  and  ([/)  of  section  six  as  not  subject  to  a  stamp 
tax,  or  may  make  such  local-currency  deposits  as  are  exempted  from 
taxation  by  section  eight  and  nine  without  securing  such  a  license: 
A/id  prorided  fin't]iei\  That  a  bank,  corporation,  or  individual  may 
purchase  local  currency  aa  ith  the  j^urpose  and  effect  of  promptly  ship- 
])ing  said  currency  out  of  the  counti-y  without  securing  such  a  license: 
And  provided  further,  That  the  collection  of  accounts,  debts,  or  other 
obligations  made  or  incurred  prior  to  January  first,  nineteen  hundred 
and  five,  shall  not  be  considered  current  business  subject  to  the  provi- 
sions of  this  section. 

{h)  The  licenses  shall  be  classified  in  accordance  with  the  classifi- 
cation of  rates  of  the  industrial  taxes,  and  the  amount  payable  for  a 
license  of  tlie  first  class  shall  be  ten  thousand  [)esos,  Philippines  cur- 
rency; for  a  license  of  the  second  class,  five  thousand  pesos,  Philip- 
pines currenc}';  for  a  license  of  the  third  class,  one  thousand  pesos, 


312       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

Philippines  currencj^;  and  for  a  license  of  the  fourth  class,  five  hun- 
dred pesos,  Philippines  currency. 

(c)  Each  separate  factory,  shop,  store,  or  other  business  establish- 
ment, and  each  separate  trade  or  business  whether  owned,  managed, 
or  carried  on  by  the  same  or  different  persons,  firms,  or  corporations, 
shall  be  considered  for  the  purposes  of  this  act  a  separate  industry, 
and  shall  require  for  its  legal  conduct  or  management  a  separate 
license  of  the  class  provided  for  in  this  act.  This  section  of  this  act 
shall  be  administered  in  accordance  with  the  provisions  of  the  indus- 
trial tax  law  so  far  as  those  provisions  are  not  contrary  to  the  provi- 
sions of  this  act. 

(d)  Any  person,  firm,  or  corporation  who  shall  use  local  currency 
in  the  conduct  of  his  business  without  a  license  and  contrary  to  the 
provisions  of  this  act  shall  be  guilty  of  a  criminal  offense,  and  shall 
be  subject  to  a  fine  of  not  exceeding  ten  per  centum  of  the  license  fee 
required  for  his  business,  in  addition  to  the  payment  of  the  license  fee. 
Each  separate  transaction  in  local  currency  contrary  to  law  shall  con- 
stitute a  separate  offense  and  shall  subject  the  offender  to  a  separate 
fine  of  not  exceeding  ten  per  centum  of  the  license  fee. 

Sec.  12.  Immediately  upon  the  passage  of  this  act  it  shall  be  the 
duty  of  the  chief  of  the  division  of  the  currency  to  prepare  and  have 
published  in  the  principal  languages  and  dialects  of  the  Philippine 
Islands  an  announcement  explaining  the  new  Philippines  currency, 
and  the  more  important  laws  and  official  regulations  pertaining  to  the 
use  of  that  currency,  and  the  methods  provided  for  the  withdrawal  of 
local  currency  from  circulation.  Copies  of  this  announcement  shall 
be  sent  to  all  the  provincial  goA^ernors,  provincial  and  nmnicipal  treas- 
urers, presidents  and  municipal  councilors  of  the  Philippine  Islands, 
and  shall  be  posted  and  advertised  as  widelj''  as  possible  throughout 
the  Philippine  Islands. 

Sec.  13.  This  act  shall  be  administered  by  the  collector  of  internal 
revenue  for  the  Philippine  Islands. 

Sec.  11.  This  act  shall  take  effect  on  its  passage. 

Enacted,  J.anuary  27,  1904. 

5.  FINANCIAL  SECRETARY'S  ORDER  OF  NOVEMBER  .3,   1004. 

Advise  depositories  in  the  United  States  of  gold  standard  fund  to 
sell  demand  drafts  on  the  Philippine  treasury  at  three-eighths  of  1 
per  cent  and  telegraphic  transfers  at  three-fourths  of  1  per  cent  in 
sums  not  less  than  $5,000,  rate  temporarily  fixed  by  secretary  of 
finance  and  justice,  in  accordance  with  subsection  1  of  section  7,  act 
938. 


Appendix  C. 

PANAMA. 

I.  LAW  PROPOSED  IN  PANAMA. 

NATIONAL    CONVENTJON    OF    PANAMA— MONETARY    QUESTION. 

Project  approved  in  the  session  of  March  10,  1904 : 
That  the  order  of  the  day  be  changed  and  the  following  substi- 
tuted :  That  the  project  for  a  law  on  the  monetary  question  be  first 
discussed  and  then  passed  to  a  committee  of  this  assembly,  consisting 
of  a  deputy  for  each  province,  to  examine  the  ])roject  and  report  upon 
it  within  fifteen  days.  Let  the  immediate  publication  of  the  project 
be  ordered. 

Project  of  a  Law  Relating  to  Money. 

The  national  convention  of  Panama  decrees: 

Article  1.  The  monetary  unit  of  the  Republic  shall  be  the  gold 
peso,  of  equal  dimensions,  weight,  and  alloy  as  the  actual  gold  dollar 
of  the  L^nited  States  of  America,  divisible  in  one  hundred  parts  or 
cents. 

Art.  2.  The  actual  gold  dollar  of  the  LTnited  States  of  America 
and  its  multiples  shall  be  legal  tender  in  the  Republic  at  their  nom- 
inal value,  equivalent  to  gold  pesos. 

Art.  3.  In  the  event  of  their  emission  being  considered  convenient, 
the  national  gold  coins  shall  be  of  1,  5,  10,  and  20  pesos,  and  of  equal 
dimensions,  weight,  and  alloy  as  the  actual  coins  of  the  United  States 
of  America  of  the  same  value,  expressed  in  dollars.  The  Executive 
shall  determine  the  form  and  other  details  Avith  regard  to  the  coinage 
and  emission  of  national  gold  coins. 

Art.  4.  The  fractions  of  the  national  peso  shall  be  of  silver  and  of 
nickel. 

Art.  5.  The  fractional  silver  coins  shall  be  900  millesimals  fine, 
with  100  millesimals  of  co])per  alloy. 

Art.  6.  The  value,  weight,  and  diameter  of  the  national  silver  coins 
shall  be  as  follows :  Coins  of  50  cents  shall  weigh  25  grams  and  have  a 
diameter  of  ?>7  millimeters,  those  of  25  cents  shall  Aveigh  12i  grams 
and  be  of  30  millimeters  in  diameter,  10-cent  pieces  shall  weigh  5 
grams  and  be  of  23  millimeters  diameter,  and  5-cent  }:)ieces  will  weigh 
2i  grams,  Avith  a  diameter  of  IS  millimeters.  The  ExecutiA'o  shall 
determine  the  form  and  other  details  regarding  the  coinage  and  emis- 
sion of  national  sih'er  coins. 

Art.  7.  The  national  silver  coins  shall  be  legal  tender  at  their  nom- 
inal value  in  all  transactions;  but  they  shall  not  be  coined  in  greater 

313 


314  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

quantity  than  is  absolutely  necessary  for  the  conversion  into  national 
coin  of  the  Colombian  silver  coin  actually  in  circulation  in  the  Repub- 
lic, nor  shall  new  emissions  be  made.  Only  the  worn-out  silver  coins 
shall  in  future  be  recoined,  or  the  coins  of  oiie  class  may  be  converted 
into  coins  of  another  class. 

Art.  8.  The  Government  of  the  Republic  is  obliged  to  maintain  the 
par  or  equal  value  of  the  legal  gold  and  silver  coins,  and  the  Execu- 
tive is  authorized  to  dictate  provisionally — until  the  ordinary  or 
extraordinar}^  meeting  of  the  Legislature — such  measures  as  it  ma}^ 
deem  convenient  for  the  maintenance  of  the  national  silver  coin  at 
its  emission  value. 

Art.  9.  The  Colombian  silver  coins  actually  in  circulation  in  the 
Republic  shall  be  withdrawn  and  exchanged  for  new  legal  gold  and 
silver  coins  at  the  rate  of  225  pesos  of  Colombian  money  for  100  pesos 
of  the  new  money. 

Art.  10.  During  the  conversion  into  national  coin  of  the  Colombian 
silver  coin  now  in  circulation  in  the  Republic,  they  shall  continue  to 
be  legal  tender  at  the  rate  of  exchange  at  wdiich  they  will  be  con- 
verted; that  is,  at  225  per  cent. 

Art.  11.  The  Executive  shall  determine  the  time  Avhen  the  Colom- 
bian silver  coins  now  in  circulation  shall  cease  to  be  legal  tender,  but 
in  no  case  shall  it  be  later  than  the  31st  of  December  next.  After  the 
date  to  be  fixed  b}^  the  Executive  the  Colombian  shall  not  be  legal 
tender  any  more. 

Art.  12.  The  obligations  contracted  before  the  enacting  of  the  pres- 
ent law  that  are  tacitly  or  expressly  payable  in  Colombian  silver  coin 
(of  0.835  m.  fine)  shall  be  redeemable  in  national  gold  and  silver  coin 
at  the  before-expressed  rate  of  225  pesos  of  Colombian  monej^  for  100 
pesos  of  the  new  money. 

Art.  13.  If  the  emission  of  nickel  coins  for  fractions  of  a  peso  be 
deemed  necessary,  such  coins  shall  be  for  the  one-hundredth  part  of 
a  peso ;  the  amount  to  be  struck  not  to  exceed  30,000  pesos. 

Art.  14.  The  national  nickel  coins  shall  be  legal  tender  in  all  trans- 
actions to  the  amount  of  5  cents,  except  in  fiscal  payments,  in  which 
they  will  be  admitted  to  the  amount  of  5  per  cent. 

Art.  15.  The  expenditure  occasioned  by  carrying  out  the  present 
law  shall  be  included  in  the  budget  of  general  expenses. 

Given  in  Panama,  the  of  March,  1904. 


March  11,  1904^ 
In  to-day's  session  in  first  debate  the  preceding  project  was  ap- 
proved and  i^assed  in  commission  for  the  term  of  fifteen  days  to  the 
honorable    deputies    Castulo    Villamil,    Sebastian    Sucre    J.,    Julio 
Tcaza,  N.  Victoria  J.,  J.  Vasquez  C,  Demetrio  H.  Brid,  and  Luis 


Garcia  F. 
Is  copy. 


Juan  Brin, 

The  Secretary  of  the  Convention. 

Ladislac  Sosa, 
The  Assistant  Secretary. 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  815 

2.  FIRST   MEMORANDUM   OF   THE   AMERICAN   COMMISSION. 
Memokandum   Regarding  the  Currency  of  Panama. 

It  is  of  p'oat  importance  from  the  standpoint  of  economy  in  letting 
contracts  for  the  construction  of  the  Panama  Canal  and  in  securing 
justice  between  contractors  and  their  employees  that  a  sound  cur- 
rency system  should  be  in  operation  on  the  Isthmus  of  Panama.  It 
is  important  not  only  that  the  system  should  be  sound  in  itself,  but 
that  it  should  give  sufficient  assurance  of  stability  and  permanence 
to  permit  contractors  to  calculate  with  certainty  the  cost  of  labor  and 
materials  on  the  Isthnuis.  Whether  such  a  system  exists  or  not  wdll 
have  nnich  to  do  with  determining  the  terms  on  which  contractors 
will  be  willing  to  enter  into  engagements  with  the  Canal  Commission. 

In  order  to  secure  stability  it  is  desirable  that  the  new  system 
should  repose  ui)on  the  gold  standard  and  that  any  coins  or  notes 
issued  under  such  a  system  should  represent  fixed  values  in  gold. 
This  result  may  be  attained  in  a  variety  of  ways,  as  will  be  set  forth 
hereafter.  The  contracts  made  by  the  Canal  Commission  will  un- 
doubtedly be  made  chiefly  with  citizens  of  the  United  States  and  in 
United  States  money.  In  determining,  however,  what  charges  to 
make  to  the  Government  for  any  given  work  to  be  performed  on  the 
Isthmus,  contractors  will  necessarily  be  compelled  to  consider  the 
state  of  the  currency  in  which  they  must  pay  for  labor.  If  they  are 
left  in  uncertainty  as  to  the  currency  with  which  they  will  be  com- 
]:)elled  to  pay  wages  and  buy  materials,  they  will  naturally  insure 
themselves  against  loss  by  basing  their  estimates  on  the  highest  pos- 
sible labor  cost  under  any  probable  currency  system.  If  after  so 
doing  they  are  able  to  pay  wages  in  a  depreciated  or  fluctuating  cur- 
rency, they  will  make  the  entire  profit  of  the  variations  in  such  cur- 
rency at  the  expense  of  the  Govermnent. 

Aside  from  the  loss  to  the  Govermnent  which  will  grow  out  of 
uncertainty,  the  final  employment  of  a  fluctuating  or  depreciated  cur- 
rency on  the  Isthmus  will  inflict  more  or  less  injustice  upon  laborers 
and  clerical  employees,  and  the  dissatisfaction  felt  by  them  may,  by 
driving  away  the  most  competent  men  after  a  short  stay,  delay  the 
work  and  deteriorate  the  character  of  the  service,  and  thus  react  upon 
the  Canal  Commission  itself. 

It  is  very  desirable,  therefore,  in  order  to  avoid  loss  to  the  Govern- 
ment by  paying  contractors  a  premium  for  the  risks  of  uncertainty 
in  the  monetary  system  and  to  secure  economy  and  efficiency  in  con- 
struction that  action  should  l)e  taken  at  an  early  date  to  determine 
upon  a  sound  system  and  to  see  that  it  is  ])ut  in  operation. 

Another  important  object  to  be  desired  in  the  currency  system  in 
use  by  the  Panama  Canal  Commision  on  the  Isthmus  is  uniformity  of 
values  and  units,  if  not  of  names,  between  the  currency  used  in  the 
Canal  Zone  and  that  used  in  Colon,  Panama,  and  other  parts  of  the 
Kepublic  of  Panama.  This  consideration  is  not  sufficiently  impor- 
tant to  justify  the  use  by  the  Connnisison  in  the  Zone  of  a  defective 
currency,  if  such  a  defective  currency  is  in  use  in  Panama.  If  agree- 
ment could  be  reached,  however,  upcm  a  sound  system,  it  would  con- 
duce greatly  to  the  convenience  of  hiborers,  clerks,  and  others  con- 
nected with  the  construction  of  the  canal  to  receive  for  their  services 
a  form  of  currency  which  was  current  in  Colon  and  Panama  and 


316       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

which  they  could  use  there  without  pajang  for  its  exchange  or  sub- 
mitting to  a  discount. 

There  are  three  chief  policies  among  which  a  choice  might  be  made 
in  making  disbursements  on  the  Isthmus.  There  are  other  possible 
variations  of  these  three  policies,  but  consideration  of  these  will  be 
sufficient  to  illustrate  the  principles  involved.  These  three  policies 
are: 

1.  The  adoption  of  United  States  currency  as  the  sole  legal  tender 
in  the  Canal  Zone  and  in  Panama. 

2.  The  adoption  by  the  Government  of  Panama  of  a  currency  con- 
forming in  all  respects  to  that  of  the  United  States,  except  its  issue 
with  special  devices  setting  forth  the  sovereignty  of  the  Government 
of  Panama. 

3.  The  adoption  of  a  distinctive  currency,  intended  to  conform  to 
the  existing  scale  of  wages  and  customs  of  the  people  of  the  Canal 
Zone. 

I.  The  first  suggestion — the  adoption  of  United  States  currency 
as  the  sole  legal  tender  in  the  transactions  of  the  Commission  and  in 
the  territory  under  its  jurisdiction — would  undoubtedly  be  acceptable 
to  the  American  clerical  force  and  to  those  dealing  directly  Avith  the 
United  States.  It  has  the  great  merit  also  of  conforming  to  the 
grand  conception  of  the  present  Secretary  of  the  Treasury,  that  the 
American  dollar  should  everywhere  be  made  the  money  of  trade, 
carrying  with  it  the  prestige  and  power  of  the  American  name.  Un- 
less the  United  States  money  were  also  made  sole  legal  tender  in  the 
Republic  of  Panama,  however,  the  difficulties  would  be  felt  of  lack 
of  uniformity  between  the  money  used  in  the  Canal  Zone  and  that 
used  in  Colon  and  Panama,  where  much  of  it  would  undoubtedly 
be  expended  by  those  who  received  it,  or  exchanged  for  money  which 
they  could  use.  If  the  Government  of  Panama  should  adopt  Ameri- 
can currency  as  its  national  money,  this  difficulty  would  be  overcome. 

It  would  be  necessary  under  this  policy  for  the  Panama  Canal 
Commisison  to  transport  to  the  Isthmus  a  sufficient  quantity  of 
United  States  currency  to  meet  the  demand  for  a  circulating  medium. 
It  is  probable  that  a  much  larger  ])roportion  of  the  money  thus 
brought  to  the  country  would  require  to  be  in  subsidiary  silver  than 
woidd  be  the  case  for  an  equal  i)opulation  in  the  United  States.  Sani- 
tary reasons  would  argue  against  the  general  use  of  paper  money, 
in  spite  of  the  vogue  which  it  has  had  in  the  Republic  of  Colombia, 
outside  Panama,  in  recent  years.  If,  as  reported,  the  average  wages 
of  labor  in  Panama  are  now  40  cents  per  day  in  depreciated  silver, 
representing  less  than  20  cents  in  American  gold  coin,  it  is  obvious 
that  tlie  transactions  carried  on  by  those  who  receive  these  wages 
must  be  chiefly  in  very  small  amounts.  Where  a  laborer  in  the 
United  States  might  find  use  for  a  $5  gold  piece,  representing  the 
wages  of  one  or  two  days,  it  would  be  less  suitable  to  the  requirements 
of  a  laborer  whose  daily  wages  were  20  cents,  because  for  him  a  $5 
gold  piece  would  represent  tTie  earnings  of  twenty-five  days  of  con- 
tinuous labor,  or  practically  a  full  calendar  month.  If  American 
money  were  used,  the  silver  pieces  of  10  cents,  25  cents,  and  50  cents 
would  probably  be  in  much  greater  demand  than  notes  for  $1  or  gold 
coins  of  $5  or  higher  amounts.  '  It  is  a  question  whether  the  present 
stock  of  subsidiary  silver  in  the  United  States  would  not  be  unduly 
depleted  by  the  shipment  of  a  large  amount  to  the  Canal  Zone.     There 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  317 

mio^ht  then  arise  a  doinaiid  for  additional  silver  coinage  by  the  United 
States,  M'hich  many  advocates  of  a  sound  currency  there  seriously 
deplore. 

II.  The  second  metliod  suggested — the  adoption  of  a  currency  by 
the  Government  of  l\inania  based  upon  the  same  unit  and  standard  of 
value  as  the  currency  of  the  United  States — would  create  a  harmony 
between  the  moneys  of  the  Republic  and  of  the  Canal  Zone  which 
would  in  many  respects  be  very  convenient.  It  Avould  involve,  how- 
ever, the  issue  l)y  the  (iovernment  of  Panama  of  a  considerable 
(piantity  of  subsidiary  silver  to  meet  the  demand  for  the  payment  of 
wages  and  other  small  transactions,  unless  notes  for  small  amounts 
were  issued.  Either  policy — the  issue  of  large  quantities  of  sub- 
sidiary silver  or  of  small  paper — would  involve  some  risks  to  the 
stability  of  the  currency  unless  carefully  supervised.  The  coinage  of 
silver  pieces  at  the  ratio  of  16  to  1  when  the  bullion  value  of  the  pieces 
was  less  than  half  their  face  value  would  involve  some  danger  of 
counterfeiting.  More  serious,  perhaps,  would  be  the  danger  of  over- 
issues and  of  the  lack  of  faith  in  some  quarters  that  the  silver  would 
be  maintained  by  the  Government  of  Panama  at  par  with  gold. 

It  would  probably  be  advisable  to  suggest  to  the  Government  of 
Pananui,  if  such  a  measure  is  to  be  carried  out,  as  reported  in  recent 
dispatches  from  there,  that  the  silver  coin  issued  should  be  protected 
by  setting  aside  a  gold  reserve.  This  reserve  might  be  derived  from  the 
payment  about  to  be  made  by  the  Government  of  the  United  States  to 
the  Government  of  Panama.  It  is  difficult  to  estimate  the  amount  of 
currency  which  would  be  readily  absorbed  by  the  requirements  of 
labor  and  business  during  the  construction  of  the  canal.  Putting  it, 
however,  at  the  rather  liberal  figure  of  $10  per  capita  in  United  States 
currency  for  a  population  of  250,000,  the  amount  required  would  be 
$2,500,000.  If  this  were  all  issued  in  subsidiary  silver,  it  should  be 
protected  by  a  reserve  of  not  less  than  25  per  cent  in  gold,  and  perhaps 
more  safely  by  a  reserve  of  35  to  40  per  cent.  The  Government  of 
Panama  would  indeed  be  able  to  set  aside  such  a  reserve  without 
drawing  upon  the  payment  for  the  canal  privilege  by  simply  appro- 
pi-iating  for  the  purpose  the  seigniorage  upon  the  coinage  issued.  If, 
for  instance,  silver  were  purchased  at  60  cents  an  ounce,  and  an 
ounce  coined  into  $1.25  in  money,  the  gold  cost  of  the  silver  required 
for  the  coinage  of  $2,500,000  would  be  only  $1,200,000,  and  there 
would  be  a  profit  to  the  Government  of  $1,300,000.  It  would  be 
highly  desirable  that  the  whole  or  nearly  the  Avhole  of  this  profit 
shoidd  be  set  aside  as  a  guaranty  fund  for  maintaining  the  parity  of 
the  silver  money  thus  issued;  and  in  order  to  afford  a  conspicuous 
guaranty  to  contractors  and  others  interested  that  this  fund  was  to  be 
unimpaired,  it  woidd  be  advisable  to  deposit  it  in  some  bank  of  high 
reputation  in  New  York  or  elsewhere  outside  the  Republic  of  Panama. 

III.  The  third  suggestion — the  adoption  of  a  distinctive  currency 
for  the  Canal  Zone — is  important  in  case  the  adoption  of  the  American 
unit  or  standard  sliould  result  in  difficulties  in  regard  to  wages  and 
prices.  There  is  some  reason  to  fear  that  if  the  American  gold  dollar 
were  introduced  wdiere  a  lower  unit  had  prevailed,  whether  this  were 
done  by  the  action  of  the  United  States  in  the  introduction  of  their 
own  currency,  or  by  the  Re])ublic  of  Panama,  there  would  be  a  dis- 
position on  the  part  of  shopkeepers  and  trades  to  advance  the 
prices  of  the  articles  in  which  they  dealt  by  putting  into  dollars  prices 


318  GOLD    STANDARD    IN    INTERNATIONAL  .TRADE. 

previously  expressed  in  depreciated  silver  pesos.  They  might  make 
a  nominal  reduction  by  putting,  for  illustration,  a  price'of  75  cents  on 
an  article  formerl}^  selling  for  a  peso,  but  as  the  silver  peso  is  now 
worth  in  gold  less  than  half  of  the  dollar,  this  Avoidd  be  in  fact  an 
increase  of  at  least  50  per  cent  in  the  gold  price  of  the  article.  The 
matter  of  retail  prices  would  indeed  adjust  itself  in  time,  and  while  it 
Avould  cause  more  or  less  irritation  and  misunderstandings,  need  not 
perhaps  concern  seriously  the  Panama  Canal  Conmiission,  if  its 
effect  went  no  further.  The  point  at  which  the  matter  would  deserve 
their  serious  consideration  would  be,  whether  such  a  policy  would 
have  a  sufficient  influence*  upon  prices  to  increase  the  cost  of  living 
and  thereby  cause  a  demand  for  higher  wages  than  those  now  paid  in 
silver.  If,  for  illustration,  wages  were  40  cents  per  day  in  silver,  and 
through  an  advance  in  the  cost  of  living  it  became  necassary  to  put 
them  at  30  cents  in  gold,  this  would  be  in  fact  an  increase  of  50  per 
cent  in  gold  wages.  The  increase  would  indeed  be  somewhat  more 
than  50  per  cent,  as  silver  bullion  is  now  less  than  half  its  value  at  the 
old  parity  of  16  to  1,  but  the  assumption  that  it  has  fallen  one-half  in 
gold  A'alue  is  sufficiently  near  the  fact  to  afford  a  convenient  means  of 
illustration. 

If  w^ages  should  be  advanced  50  per  cent  as  the  result  of  an  error  in 
the  selection  of  a  form  of  currency,  it  would  mean  a  very  serious 
enhancement  in  the  cost  of  the  construction  of  the  canal.  It  is  prob- 
able that  an  enhancement  in  the  wages  of  labor  will  occur  in  any 
event,  owing  to  the  sudden  demand  for  labor.  If  this  rise  in  Avages 
should  offset  the  rise  in  retail  prices  caused  by  a  change  in  the  cur- 
rency sj^stem,  the  net  result  would  not  be  serious;  but  if,  on  the  other 
hand,  an  advance  in  prices  were  caused  by  the  sudden  increase  in 
demand  for  the  products  required  by  laborers,  and  a  further  increase 
in  prices  were  superimposed  upon  this  as  the  result  of  a  change  in  the 
currency  unit,  the  calculations  based  upon  present  prices  for  goods  or 
for  labor  would  be  radically  upset.  These  considerations,  and  all  the 
uncertainties  associated  Avith  them,  will  undoubtedly  be  weighed  by 
careful  contractors  in  submitting  bids  and  entering  upon  contracts 
with  the  Canal  Commission,  and  any  step  taJvcn  in  advance  to  remove 
uncertainties  will  tend  toward  economy  in  the  making  of  such  con- 
tracts. 

There  is  always  the  danger  in  introducing  a  new  currency  system 
that  the  more  ignorant  part  of  the  population  will  distrust  the  new 
mone}''  and  will  refuse  to  receive  it  at  its  real  gold  value.  This  diffi 
culty  might  be  materially  increased  in  the  case  of  the  people  of  the 
Canal  Zone,  by  attempting  to  introduce  a  coin  issued  at  the  coinage 
ratio  of  1()  to  1  betM^een  gold  and  silver,  and  having,  therefore,  a  value 
more  than  twice  as  great  as  the  coins  of  the  same  size  now  in  circula- 
tion in  depreciated  silver.  Whether  the  persons  receiving  such  coins 
would  at  once  appreciate  their  real  gold  value,  or  would  distrust  pieces 
purporting  to  have  a  gold  value  more  than  twice  as  high  as  pieces  of 
the  same  size  in  tluur  old  monetary  system,  is  a  question  about  which 
there  is  a  difference  of  <)])ini()n  aiul  conflict  of  historical  evidence.  In 
some  cases  a  change  of  this  character  has  been  readily  accepted, 
although  the  cases  are  rare  where  so  radical  a  difference  between  the 
face  value  of  two  coins  of  the  same  weiglit  has  been  presented  to  a 
backward  pcoj^le.     In  other  cases  there  has  been  the  most  stubborn 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       319 

conservatism  in  accepting"  coins  with  new  devices,  even  thongh  of  the 
same  weight  and  vahie  as  the  old. 

In  China  the  attempt  at  one  ti;ne  to  introdnce  a  new  mintage  of 
Mexican  doliai-s  hirgely  failed  throngh  the  fact  that  the  average 
(^hinaman  was  accnstomed  to  the  dollar  with  the  old  device  of  the  ris- 
ing sun  and  would  accept  no  other.  In  portions  of  Africa  the  natives 
were  so  long  wedded  to  a  form  of  dollar  coined  in  the  time  of  Maria 
Theresa,  that  for  many  years  after  the  death  of  this  P^mj^ress  coins 
of  the  same  device  were  strnck  olF  for  their  special  nse.  In  these  cases, 
moreover,  there  was  not  the  ditierence  in  the  value  between  the  old 
coins  and  the  new  of  the  same  size  which  "wonld  arise  in  Panama  if  the 
attempt  were  to  he  now  made  to  substitute  for  the  depreciated  silver 
of  the  Kepublic  of  Colombia  the  higher-rated  pieces  of  the  Republic  of 
the  United  States. 

Whether  the  one  system  or  the  other  referred  to  in  this  memoran- 
dum would  be  most  acceptal)le  to  the  people  of  the  Kepublic  of  Pan- 
ama and  would  resnlt  in  the  greatest  economy  to  the  Panama  Canal 
Commission  in  making  contracts  depends  to  a  large  extent  upon  the 
temper  of  the  community,  the  w'illingness  of  the  Government  of 
Panama  to  adopt  a  monetary  system  with  sufficient  guarantees  of 
soundness  to  afford  absolute  assurance  of  its  permanence  to  those  who 
will  do  business  there  during  the  period  of  the  construction  of  the 
canal,  and  to  the  influence  which  the  United  States  will  be  able  to 
exerciH4'  through  their  officials,  open  the  maintenance  of  a  sound  and 
strong  monetary  policy  by  the  Republic  of  Panama.  If  the  difficul- 
ties of  transition  to  the  unit  of  the  United  States  currency  have 
already  been  surmounted,  and  wages  and  prices  are  becoming  adapted 
to  this  unit,  then  the  solution  of  making  contracts  and  paying  wages 
in  American  currency  may  prove  to  be  at  once  the  most  simple,  secure, 
and  satisfactory. 

If  the  (lovernment  of  Panama  is  disposed  to  take  this  question  up 
with  full  ajipreciation  of  the  importance  of  introducing  a  stable  cur- 
rency throughout  the  Republic  and  giving  adequate  guaranties  of  its 
maintenance,  it  might  be  advisable  for  the  Government  of  the  Repub- 
lic to  appoint  a  commission  of  one  or  more  persons  familiar  with  the 
subject  to  come  to  the  United  States  and  confer  with  the  officials  of 
the  Treasury  and  members  of  the  Commission  on  International  Ex- 
change in  regard  to  the  adoption  of  such  a  system.  Such  a  commis- 
sion would  necessarily  be  possessed  of  exact  data  regarding  the  pres- 
ent monetary  system,  and  would  have  opinions  of  value  in  regard  to 
the  facility  with  which  a  change  of  unit  and  of  standard  could  be 
introduced  among  the  people  of  the  Republic  and  of  the  Canal  Zone. 

New  York,  March  20,  IDO.'i. 

3.  PRESS  REPORTS  OF  NEGOTIATIONS. 

PAXANfA   Currency   PitrnLEM — Secretary   Hay   to   Urge   Adoption   of   United 

States  Gold  Standard. 

[From  the  Journal  of  Commerce  and  Commercial  Bulletin,  New  York.  Monday,  June  6, 1904.] 

Washington,  June  }{. 
Admiral  Walker,  president  of  the  Panama  Canal  Commission,  had  a  long  con- 
fereiifo  to-day  at  the  War  De])artnient  with  Secretary  Taft,  and  Mr.  Taft  after- 
wards tallced  with  Secretary  Hay  about  the  unsatisfactory  financial  conditions 
on  the  Isthmus.     To  protect  the  vast  army  of  laborers  who  will  dig  the  canal 


320       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

and  live  indiscriminately  in  the  Canal  Zone  and  in  Panama  from  the  evil  effects 
of  a  fluctuating  and  depreciated  currency,  the  United  States  Government  regards 
it  as  essential  that  there  shall  be  a  sound  money  medium  employed  in  Panama, 
and  that  it  shall  correspond  as  closely  as  possible  with  the  United  States  stand- 
ards. The  adoption  by  the  Panamans  of  a  gold  standard,  therefore,  is  regarded 
as  necessary. 

The  Panama  Government  has  been  wrestling  with  the  problem  for  months, 
and  to-day  a  cable  dispatch  was  received  from  Mr.  Lee,  the  United  States  charge 
at  Panama,  stating  that  the  gold-standard  bill  had  been  defeated  by  a  deadlock 
in  the  legislature.  He  added  that  a  call  had  been  issued  for  a  national  conven- 
tion, which  it  is  expected  will  consider  and  finally  pass  upon  the  currency  ques- 
tion, with  which,  it  is  now  evident,  the  Panama  executive  branch,  even  aided  by 
the  legislature,  is  unable  to  deal. 

The  whole  subject  was  discussed  by  the  Secretary  and  Admiral  Walker  in  the 
light  of  this  last  action  by  the  Panama  autliorities,  and  Secretary  Hay  promised 
that  the  State  Department,  through  its  proper  agencies,  would  undertake  to 
influence  the  Panamans  to  adopt  u  sound  currency  system.  John  Barrett,  the 
minister  to  Panama,  will  hasten,  accordingly,  to  the  Isthmus  to  aid  in  solving 
this  problem. 


Panama  Must  Keep  Reserve — Gold  Basis  for  Isthmian  Currency  Insisted 
Upon — Taft  Tells  the  Republic's  Commissioners  That  the  Stability  of 
THE  Silver  Coins  Which  Will  Be  Circulated  in  the  Canal  Zone  Must  Be 
Effectively  Maintained. 

[From  The  Sun,  Sunday,  June  12,  1904.] 

Washington,  June  11. 

Another  meeting  was  held  to-day  in  Secretary  Taft's  office  by  the 
representatives  of  the  United  States  and  the  Panama  governments, 
Avho  are  endeavoring  to  reach  an  agreement  on  a  phm  for  an  inter- 
cliangeable  monetary  system  between  the  Republic  of  Panama  and  the 
Canal  Zone. 

Those  present  were  Secretary  Taft;  Senores  Arias  and  Morales, 
the  special  commissioners  to  Panama ;  John  Barrett,  United  States 
minister  to  Panama ;  Rear-Admiral  Walker,  chairman  of  the  Panama 
Canal  Commission;  Colonel  Edwards  and  Judge  Magoon,  of  the 
Bureau  of  Insular  Affairs;  Charles  A.  Conant,  treasurer  of  the 
Morton  Trust  Company  of  New  York,  and  Seiior  Arosemena,  charge 
d'affaires  of  Panama  in  Washington. 

Secretary  Taft  again  emphasized  the  necessity  of  the  adoption  of 
a  stable  currency  system  for  the  Canal  Zone  and  the  Republic,  hold- 
ing that  whatever  system  was  adopted  must  be  satisfactory  to  the 
United  States.  In  answer  to  his  remarks  the  special  commissioners 
from  Panama  produced  a  bill  ]H-oviding  a  new  currency  system  for 
iho,  Republic,  which  failed  through  a  tie  vote  to  pass  its  third  reading 
in  the  Panama  Congress. 

In  general  terms  the  bill  undertook  to  give  the  Republic  a  monetary 
system  somewhat  similar  to  that  of  the  United  States.  It  recognized 
the  American  gold  dollar  as  legal  tender  and  as  standard  of  values, 
but  provided  also  for  the  issue  of  a  large  amount  of  subsidiary  silver 
at  the  ratio  of  32  to  1,  the  same  ratio  established  in  the  Philippines. 

Secretay  Taft  made  it  clear  that  no  currency  system,  providing, 
as  was  necessary,  foi"  a  very  large  use  of  silver  in  the  Republic  and 
the  Canal  Zone  would  Ih'.  satisfactory  to  the  United  States,  unless 
there  were  an  ample  gold  ri^scM've  in  the  Panama  treasury  to  preserve 
the  parity  between  gold  and  silver. 


GOLD    ST^SNDAKD    IN    INTPJKNATIONAL    TRADE.  321 

In  answer  U)  questions  wlietlier  this  gold  reserve  could  be  furnished 
by  the  Panama  (irovernnient,  the  commissioners  of  the  Republic 
explained  that  $:].000,000  of  the  bonus  paid  by  the  United  Slates  to 
Panama  was  to  be  used  for  running-  exjienses,  $4,000,000  for  the  con- 
struction of  important  public  works,  and  the  remaining  $3,000,000 
was  to  be  depositi'd  where  it  Avould  draw  interest. 

The  connnissioners  were  asked  how  much  subsidiary  silver  was 
now  in  circulation  in  the  Republic,  but  they  Avere  unable  to  tell,  or 
to  say  what  amount  of  gold  reserve  would  be  necessary  to  preserve 
its  parity.  This  silver  was  coined  by  the  Columbian  Government, 
and  under  the  provisions  of  the  act  which  failed  of  passage  in  the 
Panama  Congress  was  to  be  redeemed  and  recoined,  and  no  more 
Colombian  currency  permitted  to  circulate  in  Panama. 

Mr.  Taft  and  the  other  American  representatives  expressed  the 
hope  that  Pananui  would  be  able  and  willing  to  provide  a  sufficient 
gold  reserve,  and  showed  the  Republic's  commissioners  that  the 
Administration  was  determined  that  some  such  arrangement  to  insure 
the  stability  of  silver  coinage  should  be  adopted  before  it  would  con- 
sent to  allow  the  circulation  of  Panama  money  in  the  Canal  Zone. 

The  Republic's  connnissioners  were  unable  to  give  any  assurance 
that  their  (jovernment  would  provide  a  gold  reserve,  but  they  i:)rom- 
ised  to  endeavor  to  ascertain  the  wishes  and  intentions  of  the  Isth- 
mian authorities  in  the  matter. 

The  conferees  adjourned  until  next  Saturday  in  order  to  give 
them  an  opportunity  of  doing  so.  The  Panama  connnissioners  will 
also  inform  the  American  representatives  of  the  amount  of  Colombian 
subsidiary  silver  in  circulation  in  Panama. 

It  is  probable  that  at  the  meeting  a  week  hence  Secretary  Taft  and 
his  associates  will  submit  a  ]:)roposition  that  the  Panama  Government 
provide  a  gold  reserve  sufficient  to  insure  the  stability  of  the  Colom- 
bian silver  money  now  in  circulation  on  the  Isthmus,  and  make 
additions  to  the  reserve  as  rapidl}^  as  new  coins  are  issued. 


Plans  fob  Panama  Currency  Conciatded — Will  be  SuBNriTXED  to  Legislature 
FOR  Ratification — War  Department  Makes  Official  Statement — United 
States  Gold  Currency  to  be  Legal  Tender  in  Republic  of  Panama — 
Additional  Details  of  Proposed  System 

[From  tlie  Journal  of  Commerce  niul  Commercial  Bulletin,  New  York,  Tuesday,  .Tune  21, 

1004.] 

Wasiiixgton,  June  20. 

Secretary  Taft  and  the  commissioners  for  Panama  to-day  con- 
cluded arrangements  for  a  currency  system  for  Panama  which  is  to 
be  suljinitted  to  the  Panama  legislature  for  ratification.  The  plan 
already  has  been  outlined  in  these  dispatches.  It  provides  generally 
for  a  sufficiently  reserved  bimetallic  system. 

The  following  official  statement  was  given  at  the  "War  De]:)artmeiit 
to-day : 

"An  agreement  was  reached  to-day  at  the  War  Department  between 
Secretary  Taft  and  the  Panama  commissioners,  by  which  tlic  gold 
currency  of  the  United  States  shall  be  the  legal  tender  in  the  Republic 

S.  Doc.  12S,  58-3 21 


322       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

of  Panama,  and  the  money  of  Panama  shall  be  legal  tender  in  the 
Canal  Zone. 

This  agreement  will  be  transmitted  by  the  Panama  commissioners 
to  their  Government,  and  if  adopted  by  the  constitutional  convention 
will  settle  the  question  of  the  currency  to  be  used  in  the  construction 
of  the  canal.  The  substance  of  the  agreement  is  that  a  gold  dollar  of 
the  same  value  as  that  of  the  United  States  shall  be  the  standard  of 
value  in  Panama,  and  that  the  gold  currency  of  the  United  States 
shall  be  legal  tender  there,  with  provision  for  the  issue  of  fractional 
silver  currency  of  the  Republic  of  Panama.  It  is  provided  that  such 
silver  currency  shall  be  coined  to  an  amount  in  nominal  value  of 
$1,500,000  in  gold;  the  silver  to  be  obtained  by  the  recoinage  of  Colom- 
bian coins  now  in  circulation  on  the  Isthmus,  and  that  at  the  option  of 
the  Canal  Commission,  if  the  construction  of  the  canal  shall  show 
such  coinage  to  be  necessary,  there  shall  be  an  additional  coinage  of 
fractional  silver  to  the  amount  of  $1,500,000.  The  parity  of  all  the 
silver  coined  shall  be  maintained  by  the  deposit  in  some  bank  in  the 
United  States  of  15  per  cent  of  the  nominal  value  of  such  fractional 
currency  and  the  net  seigniorage  on  the  amount  coined  at  the  request 
of  the  Canal  Commission.  In  order  to  prevent  the  manipulation  of 
exchange  at  the  expense  of  the  public  and  canal  works,  the  Republic 
and  the  Commission  agree  to  cooperate  by  the  sale  of  drafts  at  reason- 
able rates  to  keep  down  the  exchange  on  New  York  and  thus  prevent 
a  disturbance  of  the  parity." 

4.    PROJECT  OF  THE  AMERICAN  COMMISSION. 

Suggestions  Regarding  the  System  of  Currency  to  be  Used  in  the  Panama 

Canal  Zone. 

[Submitted  by  Hugh  H.  Hanna  and  Charles  A.  Conant,  of  the  Commission  on  Interna- 
tional Exchange ] 

The  essential  conditions  of  a  sound  currency  in  the  Panama  Canal 
Zone  are  similar  to  those  in  the  United  States — stability  of  value  in 
the  standard,  certainty  that  this  stability  will  be  maintained,  and  con- 
formity to  local  needs.  A  fourth  requirement  may  be  added  in  regard 
to  the  Canal  Zone — that  the  currency  there  used  should  be  the  same,  if 
practicable,  as  that  used  in  the  chief  cities  of  the  Panama  Republic, 
Panama  and  Colon. 

Stability  of  the  currency  system  in  its  relation  to  gold  is  important 
for  several  reasons.  One  is  that'  it  may  be  possible  for  contracts 
to  be  made  by  the  Panama  Canal  Commission  without  paying  a 
premium  to  contractors  to  cover  the  risk  of  fluctuations  in  the  money 
emjiloyed  in  the  Isthmus.  Another  is,  that  a  stable  standard  will 
tend  to  prevent  the  injustice  to  laborers  employed  on  the  canal  and 
to  clerks  in  the  service  of  contractors  and  the  Canal  Commission 
which  would  result  from  paying  them  in  a  money  which  was  liable  to 
fluctuate  in  gold  value. 

The  contracts  made  l)y  the  Canal  Commission  will  undoubtedly  bo 
made  chiefly  with  citizens  of  the  United  States  and  in  United  States 
money.  In  determining,  however,  what  charges  to  make  to  the  Gov- 
ernment for  any  given  work  to  be  performed,  contractors  will  neces- 
sarily be  compelled  to  (;onsider  the  state  of  the  currency  in  which  they 
must  buy  materials  and  pay  for  labor.  If  they  are  left  in  uncertainty 
on  this  point,  they  will  naturally  insure  themselves  against  loss  by 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       323 

biisino^  their  estimates  on  the  hifjhest  possible  Labor  cost  under  any 
probable  currency  system.  If,  after  so  doing,  they  are  able  to  pa}^ 
wages  in  a  depreciated  or  fluctuatino-  currency,  they  \vill  make  the 
entire  profit  of  the  variations  in  such  currency  at  the  expense  of  the 
Government. 

Aside  from  the  loss  to  the  Government  which  will  grow  out  of  nn- 
certainty,  the  final  employment  of  a  fluctuating  or  depreciated  cur- 
i-ency  on  the  Isthmus  will  inflict  more  or  less  injustice  upon  laborers 
and  clerical  employees,  and  the  dissatisfaction  felt  by  them  may,  by 
driving  away  the  most  competent  men  after  a  short  stay,  delay  the 
work  and  deteriorate  the  character  of  the  service  and  thus  react  npon 
the  Canal  Commission  itself.  It  is  very  desirable,  therefore,  in  order 
to  avoid  loss  to  the  Government  and  to  secure  economy  and  efficiency 
in  construction,  that  action  should  be  taken  at  an  early  date  to  deter- 
mine upon  a  sound  system  and  to  see  that  it  is  put  in  operation. 

CHARACTER   OF    THE    ECONOMIC    PROBLEM. 

Before  proceeding  to  discnss  details  of  a  plan  for  maintaining  a 
suitable  currency  in  the  Canal  Zone,  it  may  be  well  to  point  out  the 
character  of  the  economic  jn-oblem  to  be  dealt  with.  This  problem  is 
primarily  the  transfer  of  capital  from  the  United  States  to  Panama. 
Assiuning,  for  the  sake  of  illustration,  that  the  cost  of  the  canal  wall 
be  $100,000,000,  this  amount  of  capital  has  to  be  transferred  in  some 
form  from  the  United  States  to  the  Canal  Zone.  The  one  deduction 
to  be  made  from  the  amount  to  be  thus  transferred  would  be  the 
profits  of  contractors.  Contractors  who  are  American  citizens  will 
probably  desire  payment  largely  in  the  United  States  and  in  United 
States  currenc}'.  The  proceeds  of  what  they  actually  expend,  how- 
ever (excepting  profits  of  persons  from  Avhom  they  buy  materi'Js  and 
machinery  in  the  United  States),  will  be  transferred  to  Panama. 
This  transfer  Avill  be  made  in  three  forjns — machinery,  materials  of 
construction,  and  food  and  supplies  for  laborers. 

A^liile  the  contractors  themselves  may  not  directly  transfer  food 
and  supplies  for  laborers,  but  wall  pay  the  latter  in  currency  in  the 
Canal  Zone,  some  persons  in  the  United  States  and  in  the  countries 
adjacent  to  Panama  will  send  food,  clothing,  and  other  necessaries  to 
the  Isthmus  and  will  receive  their  compensation  outside  of  Panama 
in  currency  or  in  various  forms  of  capital  acceptable  to  themselves. 

The  problem  in  relation  to  the  currency  is  not  a  i^roblem  of  trans- 
ferring to  the  Isthmus  $150,000,000  in  currency,  or  even  so  nuich  as  a 
tenth  part  of  that  sum.  The  currency  required  on  the  Isthmus  will 
be  only  such  as  is  necessary  to  meet  the  demands  of  a  single  week  or 
month,  and  will  be  constantly  passed  from  hand  to  hand  to  facilitate 
the  movements  of  other  forms  of  capital.  If,  for  illustration,  50,000 
laborers  were  paid  10  pesos  per  week,  the  amount  required  for  the 
weekly  p-Ay  roll  would  be  500,000  pesos.  A  large  part  of  the  amount 
so  disljursed  would  flow  through  the  hands  of  local  shopkeepers  into 
the  l)anks,  and  would  afford  a  means  to  the  bankers  for  buving 
exchange  on  New  York.  If  there  Avere  no  hoarding  l)y  anyone,  so  that 
the  entire  amount  disbursed  at  the  end  of  one  week  found  its  way  back 
into  the  banks  before  the  end  of  the  folloAving  week,  then  the  amonnt 
of  currency  required  for  paying  wages  throughout  the  period  of  the 
canal  construction  would  be  the  amount  set  forth — 500,000  jdcsos. 


324       GOLD  STANDARD  IN  INTEENATIONAL  TRADE. 

In  view  of  the  fact,  however,  that  in  addition  to  the  existing  need 
for  currency  in  Panama,  business  generally  will  be  increased  in  vol- 
ume, that  money  will  be  held  by  banks,  shopkeepers,  and  boarding- 
house  keepers,  and  that  some  hoarding  Avill  undoubtedly  take  place , 
among  the  laborers,  the  amoimt  of  currency  required  Avill  be  several 
times  the  amount  of  the  ])ay  roll  for  a  single  week.  It  is  probable, 
however,  that  if  the  population  of  Panama  and  the  Canal  Zone,  now 
estimated  at  250,000,  should  be  increased  by  the  requirements  of  the 
canal  work  to  350,000,  a  circulation  of  20  pesos  per  capita,  or  7,000,- 
000  pesos  (amounting  to  $3,500,000  gold)  would  be  found  sufficient. 
It  is  not  necessary  now  to  determine  the  exact  amount,  for  that  ^^■ould 
be  regulated  by  a  process  more  or  less  autonuitic,  which  will  be  here- 
after set  forth.  It  is  only  necessary  to  point  out  that  the  amount  of 
currency  required  would,  on  the  one  hand,  be  only  a  small  fraction  of 
the  capital  to  be  invested  in  the  canal,  antl,  on  the  other  hand,  would 
require  to  be  several  times  the  amount  needed  to  pay  wages  at  any 
given  moment. 

THE    MONETARY   PROBLEM    TO   BE   DEALT    WITH. 

WHiat,  then,  is  the  nature  of  the  monetary  problem  to  be  dealt  with 
in  providing  an  acceptable  currency  in  the  Canal  Zone?  It  might  be 
suggested  tliat  if  the  United  States  currenc;/  were  made  the  sole 
legal  tender  it  would  meet  requirements.  There  are,  however,  several 
strong  objections  to  this  policy.  Several  of  them  may  be  summed 
up  thus: 

(1)  Absence  of  uniformity  between  the  money  of  the  Canal  Zone 
and  that  of  Panama. 

(2)  Lack  of  adaptability  of  United  States  currency  to  the  present 
standard  of  wages  and  prices  on  the  Isthmus. 

(3)  Danger  of  counterfeiting. 

.  If  agreement  can  be  reached  between  the  Panama  Canal  Commis- 
sion and  the  Republic  of  Panama  by  which  the  money  ^employed  in 
one  jurisdiction  can  be  used  interchangeably  in  the  other,  it  will 
obviate  many  difficulties  on  the  part  of  contractors,  laborers,  and  other 
employees.  Much  of  the  money  received  by  clerks  and  laborers  in 
the  Canal  Zone  will  undoubtedly  be  expended  in  Colon  and  Panama. 
These  persons  would  be  subject  to  a  hardship,  which  should,  if  pos- 
sible, be  avoided,  if  they  were  compelled  to  pay  exchange  upon  the 
money  used  whenever  they  passed  from  one  jurisdiction  to  the  other. 
Even  if  the  use  of  United  States  money  became  so  common  in  Panama 
and  Colon  as  to  make  it  acceptable  to  shopkeepers,  or  the  money  of 
Panan)a  became  equally  common  in  the  Canal  Zone,  without  some 
agreement  for  the  mutual  legal  tender  and  a  definite  ratio  between 
the  tAvo  forms  of  money,  there  would  be  discrimination  made  in 
receiving  one  money  in  the  jurisdiction  of  the  other  which  would 
probably  amount  in  effect,  if  not  in  form,  to  a  charge  for  exchange. 
It  would  be  inadvisable,  even  in  order  to  secure  uniformity,  for  the 
United  States  to  consent  to  the  employment  of  a  deprecnited  and 
fluctuating  money  in  the  (^anal  Zone.  P)ut  if  an  agreement  could  be 
made  for  the  use  of  a  stal)le  and  convenient  form  of  currency  in  both 
jui-isdi(;ti()n,  it  would  contribute  gi'eatly  to  the  convenience  and  con- 
tentment of  those  engaged  in  the  canal  work. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       325 

A    IIIGII     I'NIT    II. 1.    ADAI'TEI)    TO    LOCAL    CONDITIONS. 

The  most  inij)()rtant  objection  perhaps  to  the  einph)viiient  cf  United 
States  ciirivncv  as  the  sole  le^"al  tender  in  the  Canal  Zone  is  the  fact 
that  it  wouhl  establish  a  unit  of  value  very  diii'erent  from  the:  present 
unit, and  therefore  ill  a(lai)ted  to  local  conditions.  The  adoptiori  of  such 
a  hio;h  imit  as  the  gold  dollar  where  the  silver  peso  has  heretofore  been 
the  unit,  worth  in  the  neiohborhood  of  4,5  cents  gold,  would  require  a 
readjustment  of  prices  and  wages  which  would  ])robably  tend  to  raise 
l)rices  in  gold.  As  a  coiiseipience  of  the  rise  of  prices  the  real  earn- 
ings of  the  laborer  would  be  diminished,  or  the  Panama  Canal  Com- 
mission would  be  compelled  to  pay  much  higher  gold  wages  than 
would  otherwise  be  i'e(|uired.  If  $Tr),0()0.()0()  would  be  normally 
required  for  wages  during  the  construction  of  the  canal  and  a  change 
of  standard  should  cause  an  advance  of  one-third  in  gold  wages,  this 
item  alone  would  add  $-25,000,000  to  the  cost  of  the  canal.  This 
enhanced  cost,  moreover,  would  not  go  chiefly  to  the  laborers  who 
received  the  enhanced  gold  wages,  but  w^ould  pass  through  their  hands 
to  shopkeepers,  boarding-house  keepers,  and  the  conductors  of  various 
resorts,  who  had  raised  their  prices  to  conform  to  the  new^  monetary 
standard. 

Still  further  difficulty  would  arise  in  dealing  with  the  wage  ques- 
tion from  the  peculiar  character  of  the  silver  coinage  of  the  United 
States,  issued  at  the  ratio  of  16  to  1,  when  the  existing  commercial 
value  of  silver  is  nearer  the  ratio  of  35  to  1.  The  present  silver  coin- 
age in  use  in  Panama  conforms  to  the  value  of  silver  bullion.  A 
monetary  system  which  recognized  in  some  degree  the  present  value  of 
silver,  even  thougli  the  new  coins  were  given  a  fixed  value  in  gold, 
would  tend  to  make  the  transition  easy  and  unobserved  from  the  exist- 
ing silver  standard  to  a  stable  gold  standard.  Under  the  system  of 
making  United  States  currency  the  sole  legal  tender  and  medium  of 
exchange,  if  wages  and  prices  remained  substantial^  unchanged,  the 
laborer  and  shopkeeper  would  receive  for  a  given  gold  value  a  coin 
only  half  the  size  of  that  which  he  now  receives.  There  would  prob- 
ably be  difficulty  in  persuading  the  more  ignorant  that  an  American 
25-cent  piece  represented  a  higher  exchange  value  than  a  piece  of  50 
centavos,  twice  as  large,  of  the  old  coinage. 

Even  if  the  intellectual  operation  were  easy,  of  grasping  the  unity 
of  value  between  two  coins  so  different  in  size,  the  difficulty  would  still 
remain  that  the  new  coins  would  be  much  less  adapted  to  small  trans- 
actions than  a  system  which  permitted  the  use  of  larger  coins  for  the 
same  amount.  If  the  wages  of  labor  were  a  peso  a  day,  it  is  obvious 
that  many  of  the  expenditures  made  by  the  laborers  for  food  and 
other  articles  would  represent  very  small  amounts.  If  for  a  peso 
were  substituted  an  American  half  dollar,  the  subdivisions  would  be 
less  easy  to  deal  with  than  the  subdivisions  of  a  peso,  issued  at  about 
the  ratio  of  82  to  1,  with  the  half-peso,  20-centavo,  10-centavo,  5- 
centavo,  and  1-centavo  pieces  as  subsidiary  minor  coins. 

Whatever  standard  is  adopted  in  Panama  and  on  the  Canal  Zone, 
even  if  ^Vmerican  nu)nev  is  made  the  sole  legal  tender,  a  low  scale  of 
wages  will  necessarily  require  that  a  large  proportion  of  the  currency 
actually  in  use  shall  be  sul)sidiary  silver.  Where  a  laborer  in  the 
United  States  might  find  use  for  a  $5  gold  piece,  representing 
the  wages  of  one  or  two  days,  it  would  be  less  suitable  to  the  require- 


32G  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

iiients  of  a  laborer  whose  daily  wages  were  50  or  GO  cents,  because  for 
him  a  $5  gold  piece  would  represent  the  earnings  of  ten  days 
of  continuous  labor,  or  nearly  half  of  a  calendar  month.  If  American 
mone_y  were  used,  the  silver  pieces  of  10  cents,  25  cents,  and  50  cents 
would  probably  be  in  much  greater  demand  than  notes  for  $1  or  gold 
coins  of  $5  or  higher  amounts. 

The  danger  of  counterfeiting  would  be  serious  under  a  system 
wdiich  gave  silver  coin  an  exchange  value  more  than  100  per  cent  in 
excess  of  their  value  as  bullion.  A\1iile  this  danger  could  be  guarded 
against  more  or  less  effectively  by  careful  police  regulations,  the  possi- 
bility of  a  profit  of  more  than  100  per  cent  would  hold  ou.t  a  constant 
temptation  for  the  fraudulent  fabrication  of  coins  in  all  the  surround- 
ing countries,  and  even  in  distant  countries,  for  importation  into  the 
Republic  of  Panama  and  the  Canal  Zone.  It  should  be  borne  in  mind 
also  that  however  strict  might  be  the  police  supervision  in  the  Canal 
Zone,  it  could  not  be  extended  to  the  territory  of  Panama  without  the 
consent  of  the  Government  of  the  Republic. 

TRIXCIPLES   OF   A   PLAN    RECOMMENDED. 

In  view  of  these  considerations  it  is  suggested  that  the  following 
principles  of  a  currency  system  be  recommended  by  the  Government 
of  the  United  States  to  the  Republic  of  Panama  for  mutual  adoption 
in  that  Republic  and  in  the  Canal  Zone : 

(1)  That  United  States  gold  and  paper  currency  be  made  legal 
tender  in  Panama  and  in  the  Canal  Zone  for  debts  contracted  in  such 
currency  or  the  currency  herein  provided  for,  but  that  the  importa- 
tion of  American  silver  and  minor  coins  be  prohiliited. 

(2)  That  a  standard  silver  coin  be  issued  by  the  Government  of 
Panama  in  accordance  with  the  bill  recently  pending  in  the  Congress 
of  Panama  providing  for  a  peso  of  the  weight  of  25  grains  and  hav- 
ing the  value  of  50  cents  in  American  gold  coin,  with  corresponding 
subsidiary  and  minor  coins. 

(3)  That  the  silver  peso  herein  provided  for  be  legal  tender  for 
debts  in  Panama  without  limit  in  amount,  unless  some  other  cur- 
rency is  expressly  stipulated  in  the  contract. 

(4)  That  in  order  to  guarantee  the  parity  of  the  silver  coins 
issued  under  this  plan,  the  Government  of  Panama  shall  set  aside  a 
part  of  the  amount  paid  by  the  United  States  for  the  canal  franchise, 
not  less  than  $1,500,000,  which  fund  shall  be  deposited  in  some 
banking  institution  in  New  York  or  placed  in  trust  in  the  hands 
of  a  syndicate  or  committee  of  banlvcrs,  with  the  approval  of  the 
Secretary  of  War  of  the  United  States. 

(5)  That  arrangements  shall  be  made  between  the  Government  of 
Panama  and  the  Panama  Canal  Commission  for  selling  at  reasonable 
rates  and  on  such  terms  as  will  tend  to  maintain  the  parity  of  the 
silver  coins  of  Pananui,  drafts  upon  the  reserve  fund  set  aside  imder 
the  previous  paragraph  and  upon  the  funds  of  the  Panama  Canal 
Commission  in  the  United  States. 

(G)  That  if  the  previous  suggestions  are  complied  with  in  a  man- 
ner acceptal)le  to  the  Secretary  of  War  of  the  United  States  the 
Panama  Canal  Commission  may  authorize  the  employment  of  the 
cui-rency  of  Panama  in  the  Canal  Z(me,  and  shall  employ  it  in  dis- 
bursements so  far  as  they  lind  it  practicable  and  convenient,  reserv- 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  327 

ing  the  right  to  limit  the  amount  for  which  it  may  be  made  legal 
tender. 

(T)  That  the  Government  of  Panama  sliall  consult  with  the  Pan- 
ama Canal  Commission  in  re<^ar(l  to  the  amount  of  coinage  required 
in  the  Canal  Zone,  witli  a  view  to  keeping  the  amount  within  the 
re({uirements  of  actual  transactions. 

(8)  That  the  coinage  to  he  issued  under  this  project  shall  be  exe- 
cuted for  the  (iovernment  of  Panama  at  the  mints  of  the  United 
States. 

OPERATION    OF   THE   PLAN    PROPOSED. 

This  plan  corresponds  in  principle  with  measures  which  are  now 
before  tlie  Government  of  Panama.  It  is  a  plan  which  makes  it 
possible  for  the  Kepublic  of  Panama  to  adopt  a  sound  and  stable 
currency  based  upon  the  gold  standard,  but  with  a  subsidiary  coinage 
adapted  to  local  conditions.  It  places  upon  the  Republic  the  ulti- 
mate reisponsibility  for  establishing  and  maintaining  the  system,  but 
leaves  to  the  Panama  Canal  Commission  the  means  of  escaping  any 
of  the  evils  which  might  result  from  failure  on  the  part  of  the 
Government  of  Panama  to  carry  out  fully  the  measures  for  maintain- 
ing parity  of  its  currency. 

The  i^lan  contemplates  that  the  Republic  of  Panama  shall  adopt 
the  gold  standard  on  the  model  of  the  United  States,  either  by  adopt- 
ing a  gold  dolhir  of  its  own  of  the  same  size  and  fineness  as  ours  or 
by  making  that  of  the  United  States  legal  tender  throughout  the 
Republic.  In  order  to  avoid  confusion  betw^een  the  silver  coins  of 
the  Republic  and  of  the  United  States  it  is  suggested  that  the  impor- 
tation of  American  silver  coin  be  prohibited,  and  that  those  of  the 
Republic  of  Panama  be  employed  in  all  disbursements  of  silver 
required  l>y  the  Panama  Canal  Connnission.  In  case,  however,  there 
is  any  failure  on  the  part  of  the  Government  of  Panama  to  maintain 
the  stability  of  its  currency  it  wdll  then  be  in  the  power  of  the  Pan- 
ama Canal  Commission  to  limit  the  amount  for  wdiich  the  silver 
coins  of  Panama  shall  be  legal  tender  within  the  Canal  Zone.  Such 
a  policy  might  be  pursued  tentative!}^  if  no  marked  depreciation 
appeared  in  the  coins  of  Panama,  while  if  such  depreciation  became 
serious  it  w^ould  then  be  in  the  power  of  the  Panama  Canal  Commis- 
sion to  introduce  American  currency  freely  for  all  purposes. 

As  all  contracts  would  probably  be  made  in  American  currency, 
with  the  understanding  that  in  small  payments  the  Panama  peso 
^yas  to  be  equal  to  one-half  of  the  American  dollar,  no  disturbance 
of  legal  obligations  w^ould  occur  if  it  became  necessary  to  abandon  the 
use  of  the  currency  of  Panama.  If  such  a  contingency  should  arise, 
the  government  of  the  Canal  Zone  Avovdd  be  able  to  consider  the  ques- 
tion of  issuing  its  own  subsidiary  silver  upon  the  same  basis  as  that 
here  recommended  for  the  Republic  of  Panama.  It  is  probable, 
howa^ver,  that  by  proper  consultations  between  the  Canal  Commis- 
sioners and  the  Government  of  Panama  measures  would  be  taken  by 
that  Republic  to  promote  the  interests  of  its  own  citizens  and  the 
commerce  of  its  chief  cities  by  the  adoption  of  a  plan  acceptable  to 
the  United  States  and  by  resolute  measures  to  maintain  the  value  of 
its  currency. 

It  is  important,  if  the  Government  of  Panama  is  to  give  the  assur- 
ance of  stability  to  its  currency  system,  that  the  quantity  of  silver 


828       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

coins  shall  be  kept  strictly  limited  to  the  requirements  of  actual 
transactions,  and  that  they  shall  be  protected  in  some  way  by  a  gold 
reserve  or  a  gold  credit,  Avhicli  can  be  used  for  the  redemption  of  the 
coins  in  case  the  issues  become  excessive.  The  ample  resources  already 
at  the  connnand  of  the  Government  of  Panama  for  constituting  a 
reserve  would  be  further  increased  to  some  extent  by  the  seigniorage 
on  the  silver  coins  issued.  It  would  probably  be  prudent  to  set  aside 
this  seigniorage  as  a  part  of  the  guaranty  fund  for  the  mainteiuince 
of  the  stability  of  the  currency.  It  is  probable  that  the  demand  for 
currency  will  be  considerably  reduced  when  the  construction  of  the 
canal  is  completed,  after  an  interval  of  perhaps  ten  years.  The  neces- 
sity of  providing  for  this  contingency  should  be  ke])t  in  mind  in  con- 
stituting a  guaranty  fund.  There  is  no  reason  why  such  a  fund 
should  not  draw^  interest  while  held  in  the  custody  of  the  banks  in 
New  York,  so  that  its  employment  woidd  not  involve  any  material 
expense  to  the  Government  of  Panama. 

IMPORTANCE    OF    THE    EXCHANGE    PROBLEM. 

The  subject  of  exchange  with  New  York  will  be  a  dominating 
factor  of  the  situation  on  the  Isthmus.  This  would  j^e  the  case  with 
any  form  of  currency,  because  the  remittances  to  and  from  New  York 
by  the  Government,  by  contractors  for  canal  work,  and  by  purchasers 
of  supplies  for  laborers  will  bear  a  proportion  to  the  stock  of  cur- 
rency which  will  be  unusually  large.  If  the  amount  expended  on  the 
canal  is  $15,000,000  per  year,  this  would  constitute  an  average 
expenditure  of  $1,250,000  per  month.  There  would  be  no  certainty, 
however,  that  the  amount  would  be  the  same  in  each  montli.  On  the 
contrary,  transactions  might  easily  rise  to  $3,000,000  or  $4,000,000  at 
some  one  time  and  exchange  operations  with  New  York  be  equally 
large.  As  this  Avould  be  equal  to  8,000,000  pesos,  or  more  than  the 
entire  volume  of  currency  on  the  isthmus  (if  the  latter  were  put  at 
7,000,000  ])esos),  it  is  obvious  that  the  fluctuations  of  exchange  might 
be  very  radical  if  the  matter  were  not  carefully  managed.  The  pay- 
ment of  local  currency  into  the  banks,  moreover,  for  such  a  large 
amount  of  exchange  might  create  sudden  and  radical  changes  in  the 
volume  of  currency  in  circulation.  It  would  be  impossible  to  avert 
difficulties  from  this  cause,  with  either  a  pure  gold  currency  or  a  local 
currency,  unless  a  policy  of  cooperation  should  be  pursued  in  dealing 
with  the  matter.  It  will  probtibly  be  necessary  for  tlie  civil  governor 
of  the  Canal  Zone  to  consult  with  the  local  bankers  and  the  Panama 
Government  with  a  view  to  so  distributing  the  Government  operations 
to  avert  a  famine  in  exchange  and  excessive  rates  at  one  time,  with 
perhaps  an  excess  of  offers  and  a  violent  contraction  of  the  local  cur- 
rency at  other  times. 

As  serious  work  upon  the  canal  can  not  be  begun  for  perhaps  a 
year,  pending  tlie  completion  of  surveys,  the  making  of  contracts,  and 
the  accumulation  of  machinery,  there  is  sufficient  time  for  the  ])repa- 
ration  of  dies  and  the  issues  of  a  new  coinage  by  the  Kepublic  of 
Pananui  if  the  plans  for  it  are  promptly  perfected.  It  is  highly 
desirable,  however,  that  the  policy  to  be  pursued  should  be  fixed  at 
the  earliest  possil)le  moment,  in  order  that  contractors  in  bidding  for 
Avork'  may  know  the  conditions  under  which  they  Avill  have  to  pay  for 
labor  an'J  supplies. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       329 

Tn  viow  of  the  fact  that  n  coniniittce  of  ivproscntative  citizens  of 
Pananiii  is  about  to  visit  the  United  States  in  iv<>ar(l  to  the  invest- 
ment of  the  money  received  for  the  canal  franchise,  it  mi<iht  be  well 
to  have  this  subject  thorouiihly  discussed  with  this  connnittee,  with  a 
view  to  an  amicable  arranaement  which  woidd  enable  the  (xovernment 
of  Panama  to  adopt  a  monetary  system  of  such  a  character  that  the 
currency  issued  could  be  employed  with  prudence  and  with  satisfac- 
tory results  in  tlie  Canal  Zone. 

May  19,  1904. 

5.  AGREEMENT  BETWEEN  THE  SECRETARY  OF  WAR  AND  THE  COM- 
MISSION OF  PANAMA. 

Washington,  June  20^  1901^. 

Gentle^^ien  :  I  understand  that  there  is  now  pending  in  the  con- 
vention of  the  Republic  of  Panama,  exercising  legislative  power  for 
the  Republic,  a  bill  to  establish  a  monetary  standard  and  to  provide 
for  the  coinage  necessary  in  the  Republic.  The  Isthmian  Canal  Com- 
mission, whose  action,  by  direction  of  the  President  of  the  United 
States,  I  am  authorized  to  supervise  and  direct,  is  vitally  interested  in 
the  maintenance  in  the  Canal  Zone  of  a  stable  currency,  based  upon 
the  gold  standard. 

I  conceive  it  to  be  of  common  benefit  to  the  Republic  and  to  the 
Isthmian  Canal  Commission  that  the  currency  used  in  the  Republic 
and  in  the  Canal  Zone  should  be  the  same.  I  am  informed  that  the 
convention  of  the  Republic  has  under  consideration  a  measure  which 
in  substance  provides: 

I.  That  the  monetary  unit  of  the  Republic  shall  be  a  gold  peso,  of 
the  weight  of  1  gram,  GT2  milligrams,  and  of  nine  hundred  one-thou- 
sandth fineness,  divisible  into  100  cents,  to  be  issued  as  and  when  con- 
sidered by  the  Republic  necessary  or  convenient  for  its  requirements. 

II.  That  the  present  gold  dollar  of  the  United  States  of  America, 
and  its  multiples,  shall  also  be  legal  tender  in  the  Republic  of  Panama 
for  its  nominal  value,  as  equivalent  to  1  gold  peso  of  the  Republic. 

III.  That  fractional  silver  coins  shall  be  issued  by  the  Republic,  of 
various  denominations,  all  to  be  of  an  alloy  composed  of  nine  hundred 
one-thousandth  of  pure  silver  and  one  hundred  one-thousandth  of  cop- 
per, the  declared  value  of  the  same  bearing  a  ratio  to  the  same  weight 
of  gold  of  approximately  1  to  32,  and  that  such  fractional  silver  cur- 
rency shall  be  legal  tender  in  all  transactions. 

IV.  That  the  silver  to  be  coined  shall  be  in  fractional  denominations 
of  the  gold  i)eso  or  dollar  and,  except  as  hereinafter  specifically  pro- 
vided, shall  be  coined  only  in  exchange  or  conversion  of  the  Colom- 
liian  silver  peso  and  fractional  currency  now  legally  in  circulation  in 
the  Republic,  and  that  the  amount  thus  converted  shall  not  exceed 
$3,000,000  of  such  Colombian  pesos. 

V.  That  after  Julv  1,  1905,  there  shall  be  coined  and  issued  by  the 
Republic  such  additional  amount  of  fractional  silver  currency  to  the 
limit  in  the  aggregate  in  value  of  1,500,000  pesos  or  gold  dollars, 
equivalent  to  3,000,000  half-dollar  pieces,  as  may  be  deemed  by  the 
Secretary  of  War  of  the  United  States  necessary  or  advisable  in  the 
construction  of  the  Isthmian  Canal  and  as  may  be  requested  by  him 
of  the  Executive  power  of  the  Republic, 


330  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

VI.  The  Republic  of  Panama,  in  order  to  secure  the  legal  parity 
and  equivalence  with  the  gold  standard  of  such  fractional  silver  coins, 
shall  create  a  reserve  fund  by  deposit  with  a  responsible  banking  insti- 
tution in  the  United  States,  of  a  sum  in  law  ful  currency  of  the  United 
States  equivalent  to  15  per  cent  of  the  nominal  value  of  the  silver 
fractional  currency  issued  by  the  Republic,  and  as  the  same  is  issued, 
together  with  an  amount  equal  to  the  seigniorage  on  the  silver  coins 
issued  at  the  request  of  the  Secretary  of  AVar  as  aforesaid,  less  all  nec- 
essary costs  of  coinage  and  transportation. 

VII.  That  after  conference  with  the  Isthmian  Canal  Commission, 
or  its  representatives  or  fiscal  agents,  the  Republic  of  Panama  will 
take  such  steps  with  respect  to  exchange  by  drafts  upon  its  reserve 
fund  as  will  tend  to  prevent  the  disturbance  of  the  legal  parity  of  the 
silver  fractional  currency  of  the  Republic  of  Panama  with  the  gold 
standard. 

.  VIII.  That  the  Republic  of  Panama  shall  cause  its  coinage  to  be 
executed  at  the  mints  of  the  United  States. 

Assuming  that  legislation  Avill  be  enacted  substantially  to  the  fore- 
going eifect,  I  agree,  on  behalf  of  the  Isthmian  Canal  Commission  and 
))y  direction  of  the  President  of  the  United  States : 

First.  That  the  Isthmian  Canal  Commission  will  make  the  gold  and 
silver  coin  of  the  Republic  of  Panama  legal  tender  within  the  Canal 
Zone  b}!-  appropriate  legislation. 

Second.  That  it  will  emplo}^  such  gold  and  silver  coin  of  the 
Republic  in  its  disbursements  in  the  Canal  Zone  and  in  the  Republic 
as  the  Canal  Commission  shall  find  practicable  and  convenient. 

Third.  The  Isthmian  Canal  Commission  shall  cooperate  with  the 
Republic  of  Panama  to  maintain  the  parity  of  the  fractional  silver 
coinage  of  the  Republic  of  Panama  with  the  gold  standard  by  sale  of 
drafts  upon  its  funds  at  reasonable  rates  and  on  terms  which  will 
tend  to  prevent  the  disturbance  of  such  parity. 

Fourth.  It  is  mutually  agreed  that  nothing  herein  contained  shall 
be  construed  to  restrict  the  right  of  the  Republic  to  reduce  its  silver 
currency  after  the  opening  of  the  canal  to  commerce  to  such  an 
amount  as  it  may  deem  advisable,  and  thereupon  to  reduce  and  with- 
draw, pro  rata,  the  reserve  fund  corresponding  to  the  reduction  of  the 
amount  of  silver  coinage  outstanding. 

Will  you  please  confirm  your  accord  with  the  foregoing? 
Very  respectfully, 

Wm.  H.  Taft, 

Secretary  of  War. 

Messrs.  Ricardo  Arias  and  Eusebio  A.  Morales, 

Syecial  Fiscal  G ommissio7iers  of  the  Repuljlic  of  Panama, 


Special  Fiscal  Commission  of  Republic  of  Panama, 

New  York,  June  20, 190 Jf. 
Sir:  Pursuant  to  the  ]:)owers  coiiferred  upon  us  by  the  general 
directions  of  the  Government  of  the  Re[)ubli(;  of  Panama  and  sub- 
ject to  the  enactment  by  the  Republic  of  the  necessary  legislation,  w^e 


GOLD   f^TANDARD    IN    INTERNATIONAL    TRADE.  831 

hereby  declare  our  coniplete  accord  with  the  coiivention  embodied  in 
your  coniiniinication  of  this  date  and  agree  to  the  same  as  therein  set 
forth. 

We  are,  dear  sir,  very  truly,  yours, 

RiCARDo  Arias, 
EusEBio  A.  Morales, 
Special  Fiscal  Commissioners  of  the  Republic  of  Panama. 
Hon.  Wm.  H.  Taft, 

Secretary  of  War^  Washington,  D.  C. 

0.  ACT  OF  PANAMA  IN  PURSUANCE  OF  AGREEMENT. 

Law  No.  84 — lOO-i  (of  June  28)  on  Currency. 

The  National  Convention  of  Panama  decrees : 

Article  1.  The  monetary  unit  of  the  Republic  shall  be  the  balboa: 
that  is,  a  gold  coin  of  1  gram  six  hundre<l  and  seventy-two  milli- 
grams (1.()T'2)  in  weight  and  of  nine  hundred  thousandths  (.0900) 
fine,  divisible  into  one  hundred  hundredths  (100/100). 

Paragraph.  The  present  gold  dollar  of  the  United  States  of  Amer- 
ica and  its  multij^les  shall  be  legal  tender  in  the  Republic  at  their 
nominal  value  equivalent  to  a  balboa. 

Art.  2.  When  the  executive  power  provides  for  the  coinage  of 
national  coins  of  gold,  this  coinage  may  be  made  in  pieces  of  one, 
of  two  and  one-half,  of  five,  of  ten,  or  of  twenty  balboas,  choosing  the 
one  or  more  of  greatest  circulation  in  trade. 

Art.  3.  Silver  coins  shall  have  an  allo}'^  of  nine  hundred  thou- 
sandths of  j)ure  silver  and  one  hundred  thousandths  of  copper. 

Art.  4.  The  nomenclature,  weight,  diameter,  and  equivalent  value 
of  the  silver  coins  shall  be  the  following: 

The  peso. — A  coin  which  shall  ^^eigh  twenty-five  (25)  grams, 
which  shall  have  a  diameter  of  thirty-six  millimeters,  and  which 
shall  be  equivalent  to  fifty  one-hundredths  (50/100)  of  a  balboa. 

The  half  peso. — A  coin  which  shall  weigh  twelve  and  one-half 
grams  (12^  E^-)->  which  shall  have  a  diameter  of  thirty  (80)  milli- 
meters, and  which  shall  be  equivalent  to  twenty-five  one-hundredths 
(25/100)  of  a  balboa. 

The  one-fifth  peso. — A  coin  which  shall  weigh  five  grams  (5  gi\), 
which  shall  have  a  diameter  of  twenty-four  millimeters,  and  which 
shall  be  e(iuivalent  to  ten  one-hundredths  of  a  balboa. 

The  one-tenth  peso. — A  coin  which  shall  weigh  two  and  one-half 
(2^)  grams,  which  shall  have  a  diameter  of  eighteen  (18)  milli- 
meters, and  shall  be  equivalent  to  five  one-hundredths  (5/100)  of  a 
balboa. 

The  one-twentieth  peso. — A  coin  which  shall  weigh  one  and  one- 
half  grams  (1^  gr.),  w^hich  shall  have  a  diameter  of  ten  (10)  milli- 
meters, and  which  shall  be  equivalent  to  two  and  one-half  one-hun- 
dredths of  a  balboa. 

Paragrai^h.  Consequently,  two  pesos  of  silver  shall  be  ecjuivalent  to 
one  balboa.  which  is  the  monetary  unit.  The  other  fractions  of  a  peso 
shall  bear  the  same  equivalent  fractional  proportion  to  the  said  unit. 

Art.  5.  National  silver  coins  shall  be  legal  tender  at  their  nominal 
value  in  all  transactions. 


332       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

Art.  0.  Colombian  silver  coins  of  a  standard  not  inferior  to  885 
thousandths  fine  and  (UU)  thousandths  of  the  same  alloy,  which  are 
now  in  circulation  in  the  IvepuV)lic,  shall  be  exclMnired  for  tlie  new 
rational  coins  at  the  rate  of  $212.50  for  each  one  hundred  (100)  bal- 
boas  or  their  ecjuivalent  in  Panamanian  silver  coin.  But  the  con- 
version of  Colombian  silver  coin  of  the  standard  of  GGG  thousandths 
shall  be  limited  to  pieces  of  five  centavos  and  to  the  amount  of  20,000 
pesos  only,  provided  by  the  first  clause  of  contract  No.  36,  entered 
into  by  the  government  of  the  old  Department  of  Panama,  in  the  name 
of  the  National  Government  of  the  Republic  of  Colombia,  with 
Messrs.  Isaac  Brandon  &  Bros.,  merchants  in  this  city,  for  the  coining 
of  Colombian  silver  money,  which  contract  was  approved  by  Gen. 
Victor  M.  Salazar,  civil  and  military  chief  of  the  then  De))artment  of 
Panama,  mider  date  of  October  10,  1002,  and  was  published  in  No. 
1399  of  the  Gazette  of  Panama  of  October  9  of  the  same  year. 

Paragraph.  Obligations  contracted  before  this  law  goes  into  effect 
payable  tacitly  or  expressly  in  Colombian  silver  coin  of  a  standard  not 
inferior  to  (0.0835)  eight  hundred  and  thirty-five  one-thousandths 
shall  be  redeemable  in  the  new  national  coin  at  the  rate  stated  in  this 
article. 

Art.  T.  The  Colombian  silver  coins  of  which  this  law  speaks  shall 
continue  to  be  legal  tender  until  the  date  on  which  the  redemption 
of  them  begins  to  be  made,  and  from  that  day  forth  they  shall  have 
the  value  which  is  herein  assigned  them  for  redemption. 

The  executive  powder  shall  begin  the  conversion  of  the  coin  men- 
tioned in  article  (>  on  the  first  day  of  September  next.  For  the  pur- 
pose he  shall  designate  the  public  offices  which,  in  the  capital  and 
provinces  of  the  Republic,  are  to  make  the  exchange,  and  shall  give 
notice  thereof  thirty  days  before  the  da}^  fixed.  The  conversion 
shall  take  efi'ct  within  sixty  days  following  the  date  mentioned,  after 
which  Colombian  coin  shall  cease  to  be  legal  tender  in  the  Republic. 

Art.  8.  For  the  purpose  of  car\ang  out  the  exchange  of  the  silver 
money  now^  in  circulation  in  the  Republic,  the  executive  power  is 
authorized  to  have  coined  and  issued  not  more  than  the  amount  of 
three  million  (3,000,000)  pesos,  Panamanian  money,  as  this  law  pro- 
vides. 

Xar.  9.  To  guarantee  parity  of  the  silver  legal-tender  money  with 
that  of  gold  the  executive  power  shall  deposit  Avith  a  responsible 
banking  institution  of  the  United  States  a  sum  in  gold  equal  to  fif- 
teen per  centum  of  the  issue. 

Art.  10.  The  executive  poAver  shall  give  account  by  monthly  state- 
ments, published  in  the  Official  Gazette,  of  the  amounts  which  he 
receives  of  Colombian  and  silver  coin  for  the  purpose  of  conversion ; 
and  when  this  is  concluded  he  is  authorized  to  sell  the  money  Avhich 
is  collected  in  any  of  the  foreign  mercantile  markets  at  the  rate 
which  is  best  for  the  inter(>sts  of  the  treasury.  The  proceeds  of  this 
sale  shall  be  paid  into  the  general  treasury  of  the  Re})ublic. 

Art.  II.  The  stamp  of  the  Panama  coins  to  Avhich  this  law  refers 
shall  be  the  follow^ing: 

For  the  obverse  the  bust  of  Vasco  Nunes  de  Balboa,  discoverer  of 
the  Panama  coast  on  the  Pacific  Ocean,  in  profile,  looking  to  the  right, 
with  a  head-band  on  which  are  engi-avcd  Ihe  words  "  Dios,"  "Ley," 
"  Libei-tad."    Around  the  head  at  (he  edge  of  the  coin  the  phrase 


GOLD    STANDARD    IN    INTERNATIONAL    TRADK.  333 

'•  Koj)ul)lic'a  do,  ranania ;"'  on  tlic  base  of  the  bust  the  word  "  Balboa  " 
in  capital  letters,  but  of  smaller  size  than  the  other  inscriptions. 

On  the  lower  part  of  the  coin,  below  the  bust,  the  year  of  coining 
in  fi<;ures. 

Upon  the  reverse  the  coat  of  arms  of  the  l\ei)ublic  of  Panama  in 
the  center. 

Around  (he  upper  j)art  the  value  of  the  coin  in  words. 

Around  the  lower  part,  to  the  right,  the  weight  of  the  coin  in 
grams;  on  the  left  the  proportion  of  alloy  in  thousandths  fine. 

Art.  12.  The  introduction  into  the  territory  of  the  Republic  of  nnj 
sort  of  silver  coin  except  that  which  the  executive  power  imports  for 
<he  fulfillment  of  this  laAV  is  absolutely  prohibited. 

Art.  13.  The  executive  power  is  authorized  to  enter  into  a  mone- 
tary convention  with  the  Government  of  the  United  States  of  North 
America,  in  ^^hich  the  present  law  and  the  convention  signed  at  the 
conference  in  Wasliington  on  the  18th  day  of  the  present  month  of 
June,  between  the  commissioners  of  that  Government  and  that  of  the 
Republic  of  Panama,  shall  be  taken  as  a  basis. 

Art.  14.  The  expense  which  the  execution  of  this  law  occasions 
shall  be  considered  included  in  the  budget  of  expenses. 

Given  at  Panama  the  27tli  day  of  June,  one  thousand  nine  hundred 
and  four. 

The  President, 

(Signed)  Gerardo  Ortega. 

The  Secretary, 

(Signed)  Ladislao  Sosa. 

National  Executive  Power, 

Department  of  Hacienda. 
Let  it  be  published  and  executed. 
Panama,  June  28,  1904. 

(Signed)  M.  Amador  Guerrero. 

The  secretary  of  hacienda, 

(Signed)  F.  V.  de  la  Espriella. 

A  copy. 
The  subsecretary  of  hacienda, 

F.  Martin  Feuillet. 


Appendix  D. 


MEXICO. 

I.  FINAL  RECOMMENDATIONS  AND  REPORTS  OF  THE  COMMISSION 
APPOINTED  BY  THE  GOVERNMENT  OF  THE  REPUBLIC  TO 
INVESTIGATE  THE  MONETARY  PROBLEM. 

MONETARY  REFORM  IN  MEXICO— DEFINITE  PLANS  ARE  FORMED  TO 
PUT  THE  CURRENCY  OF  THE  COUNTRY  ON  A  STABLE  BASIS  AND 
TO  SECURE  FIXITY  IN  THE  RATES  OF  INTERNATIONAL  EXCHANGE. 

On  February  4,  1903,  the  department  of  finance  ai^pointed  a  com- 
mission of  bankers,  economists,  business  men,  mine  owners,  and 
others  to  study  Mexico's  monetary  problem  in  all  its  phases. 

That  commission  held  its  first  meeting  on  February  19,  1903,  when 
an  address  was  delivered  by  Lie.  Jose  Yves  Limantour,  minister  of 
finance,  outlining  the  labors  that  av/aited  the  commission  and  explain- 
ing the  nature  of  the  assistance  which  the  Gove.rnment  desired  from  it. 

At  the  same  session  the  commission  organized  itself.  Lie.  Pablo 
Macedo  was  appointed  chairman;  Enrique  C.  Creel,  vice-chairman; 
Lie.  Luis  G.  Labastida,  secretary,  and  Lie.  Jaime  Gurza,  assistant 
secretary. 

The  commission  also  divided  itself  into  four  subcommittees,  each 
encharged  with  the  stud}^  of  a  given  phase  of  the  monetary  question. 
The  chairmen  and  secretaries  of  the  subcommittees  in  question  were 
as  follows: 

First  subcommittee:  Chairman,  Lie.  Genaro  Raigosa;  secretary, 
Everardo  Hegewisch. 

Second  subcommittee:  Chairman,  Jose  de  Landero  y  Cos;  secre- 
tary, Carlos  Sellerier. 

Third  subcommittee:  Chairman,  Manuel  Fernandez  Leal;  secre- 
tary, Ricardo  Garcia  Granados. 

Fourth  subcommittee:  Chairman,  Lie.  Joaquin  D.  Casasus;  secre- 
tary, Carlos  Diaz  Dufoo. 

When  all  the  four  subcommittees  had  brought  in  their  reports,  the 
tendency  of  which  was  in  favor  of  monetary  reform  and  the  stabil- 
ization of  the  Mexican  dollar,  or  })eso,  a  fifth  subconunittec  was  ap- 
pointed to  devise  definite  recommendations  and  to  plan  ways  and 
means  for  carrying  the  monetary  reform  into  execution. 

The  fifth  suljconunittee  consists  of  the  cliairman  and  general  sec- 
retary of  the  monetary  commission  and  the  chairman  and  secretaries 
of  the  other  four  subcommittees  above  mentioned. 

However,  the  president  of  the  commission,  Mr.  Creel,  and  the 
assistant  secretary  of  the  commission,  Mr.  Gurza,  also  attended  the 
sessions  and  signed  some  of  the  reports. 

334 


GOLD  STANDAKD  IN  INTERNATIONAL  TRADE.       335 

The  reports  of  the  fifth  siibcoinmittee,  summing  up  as  they  do  the 
hibors  and  results  of  the  monetary  commission  and  embodying  defi- 
nite reconnnendations  for  monetary  reform,  are  of  great  importance 
and  will  be  read  with  interest  outside  of  Mexico,  showing,  as  they  do, 
the  trend  of  enliglitened  thought  in  this  country  in  regard  to  the 
monetary  i)roblem. 

The  rejKH'ts  in  (juestion  translated  into  English  are  as  follows: 

The  hfth  subcommittee  has  addressed  itself  to  a  careful  and  minute 
study  of  the  manifold  questions  involved  in  the  formation  of  a  plan 
of  monetary  reform  on  the  lines  laid  down  in  the  fifth  point  of  the 
interrogatory  formulated  by  the  department  of  finance  and  public 
credit,  to  which  the  monetary  commission  has  adjusted  its  labors, 

AVith  a  view  to  systematizing  its  procedure  and  following  the  exam- 
ple set  by  the  other  subconunittees,  the  fifth  subcommittee  drew  up  a 
programme  of  its  lal)ors,  constituting  Annex  No.  1  attached  to  this 
report,  and  confided  the  study  of  the  four  questions  embraced  by  that 
programme  to  the  following  persons  in  the  order  of  mention : 

The  first  question  was  assigned  to  Eng.  Manuel  Fernandez  Leal 
and  Lie.  Joaquin  I).  Casasus;  the  second  to  Mr.  Eicardo  Garcia  Gra- 
nados  and  Mr.  Everardo  Hegewisch;  the  third  to  Mr.  Carlos  Diaz 
Dufoo,  Mr.  Genaro  Raigosa,  and  Mr.  Pablo  Macedo,  and  the  fourth 
and  last  to  Mr.  Jose  de  Landero  y  Cos  and  Mr.  Carlos  Sellerier. 

The  partial  reports  or  studies,  emanating  from  the  persons  men- 
tioned, are  attached  to  the  present  report  as  Annexes  2,  3,  4,  and  5, 
though  it  is  to  be  noted  that  No.  3  embraces  the  opinion  enunciated  by 
Lie.  Genaro  Raigosa  alone  in  regard  to  the  reserve  fund,  for  Messrs. 
Diaz  Dufoo  and  Macedo,  who  did  not  advocate  the  immediate  for- 
mation of  that  fund,  did  not,  during  the  sitting  of  the  fifth  subcom-. 
mittee,  present  any  sj^ecial  contribution  in  writing  in  regard  to  that 
point. 

After  full  examination  and  discussion  had  been  devoted  both  to  the 
four  reports  above  mentioned  as  well  as  to  the  opinions  expressed  by 
Mr.  Enrique  C.  Creel,  the  vice-president,  who  (and  the  same  may  be 
said  of  Mr.  Jaime  Gurza,  the  assistant  secretary)  who  was  an  assid- 
uous attendant  at  the  sessions  of  the  fifth  subcommittee,  a  plan  of 
monetary  reform  was  finally  drawn  up  by  Messrs.  Carlos  Diaz  Dufoo, 
Ricardo  (larcia  Granados,  Jaime  Gurza,  Everardo  Hegewisch,  Luis 
G.  Labastida.  Pablo  Macedo,  and  Carlos  Sellerier.  With  the  main 
outlines  of  that  plan  Messrs.  Joaquin  D.  Casasus,  Enrique  C.  Creel, 
Manuel  Fernandez  Leal,  Jose  de  Landero  y  Cos,  and  Genaro  Raigosa 
concurred,  though  Mr.  Landero  y  Cos  made  an  important  reservation 
to  the  effect  that  he  does  not  favor  any  change  in  the  monetary  laws 
of  the  Republic. 

The  plan  in  question  is  contained  in  Annex  No.  9,  in  which  the 
reasons  for  each  one  of  the  concrete  measures  proposed  are  also  set 
forth. 

The  opinion  of  Mr.  Raigosa,  above  alluded  to  (No.  3),  and  the 
documents  marked  as  Annexes  6,  7,  and  8,  set  forth  the  grounds  on 
which  Messrs.  Casasus,  Creel,  Fernandez  Leal,  Landero  y  Cos,  and 
Raigosa  have  based  their  several  opinions,  and  therefore  it  seems 
useless  in  this  report  to  do  more  than  make  mention  of  those  docu- 
ments. 

We  will,  therefore,  confine  ourselves  to  stating  here  that  the  only 
points  as  to  which  our  opinions  were  divided  in  no  respect  impair  the 


336  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

concurrence  accorded  by  all  of  ns  to  the  fundamental  lines  of  the 
project  formulated  by  some  of  the  undersigned  which,  as  already 
stated,  forms  the  closing  portion  of  Annex  No.  9. 

Such,  in  brief,  is  the  result  of  the  labors  which  the  fifth  subcommit- 
tee has  the  honor  of  submitting  to  the  honorable  members  of  the 
monetary  commission. 


Mexico,  December  19,  1903. 
(Signed) 


Pablo  Macedo, 

Manuel  Fernandez  Leal, 

Genaro  Raigosa, 
Joaquin  D.  Casasus, 
Jose  de  Landero  y  Cos, 

EVERARDO  HeGEWISCH, 

Carlos  Diaz  Dufoo, 
Carlos  Sellerier, 
RicARDo  Garcia  Granados, 
Luis  G.  Labastida. 


Annex  No.  1. 

Monetary  commission,  Mexico,  fifth  subcommittee  consisting  of 
Messrs.  Pablo  Macedo,  chairman;  Joaquin  D.  Casasus,  Carlos  Diaz 
Dufoo,  Manuel  Fernandez  Leal,  Ricardo  Garcia  Granados,  Everardo 
Hegewisch,  Jose  de  Landero  y  Cos,  Genaro  Raigosa,  Carlos  Sellerier ; 
and  Luis  G.  Labastida,  secretary. 

programme  of  labors. 

First  question. — Which  is  the  monetary  system  whose  adoption  is  to 
be  recommended  to  the  Government? 

The  following  points  are  to  be  separately  studied  and  solved : 

I.  Ought  the  free  coinage  of  gold  to  be  permitted  ? 

II.  Ought  the  mints  to  be  closed  to  the  free  coinage  of  silver  on 
private  account? 

III.  Ought  the  Government  to  be  authorized  to  coin  a  new  peso 
(dollar)  or  silver  piece  destined  to  constitute,  at  least  temj^orarily, 
the  basis  of  the  monetary  circidation  of  the  Republic? 

If  the  answer  is  in  the  affirmative : 

{a)  Ought  that  coin  to  be  of  the  same  weight  and  fineness  as  the 
present  ])eso? 

(6)   (iuglit  it  to  have  the  same  effigy  as  the  present  peso? 

(c)  What  limitation  ought  to  be  put  upon  the  quantity  of  silver 
money  that  the  Governuient  is  to  coin? 

IV.  Is  it  advisable  to  coin  new  subsidiary  silver  money? 
If  the  answer  is  in  the  affirmative: 

(«)   What  class  of  coins  are  to  constitute  such  subsidiary  money? 

{h)   What  should  be  their  fineness? 

{c)   Should  the  coinage  of  the  present  bronze  centavo  be  continued? 

V.  What  should  be  the  legal-tender  cajDacity  of  the  new  coins,  both 
for  private  persons  and  the  (loverunieiit  ? 

VI.  Is  it  advisable  to  lay  down  that  the  Government  shall  be 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       337 

obliged  to  give  hard-silver  dollars  in  exchange  for  the  subsidiary 
coins  presented  to  it  for  such  excliange? 

If  the  ans-wer  is  in  the  affirmative: 

^Yhat  are  the  main  conditions  that  should  be  adopted  for  effecting 
that  exchange? 

Second  question. — WHiat  transitional  measures  should  be  adopted 
with  a  view  to  the  implantation  of  the  new  monetary  system? 

The  following  questions  are  to  be  studied  and  solved: 

I.  Can  and  ought  the  JNIexican  Government  to  prohibit  the  im- 
portation into  the  Republic  of  Mexican  dollars  that  have  been  shipped 
abroad? 

II.  What  quantity  of  the  new  coins  ought  the  Government  to  have 
in  readiness  before  beginning  to  put  the  new  monetary  system  into 
execution  ? 

III.  Ought  the  present  coins  to  be  exchanged  for  the  new  coins  at 
par,  at  a  discount,  or  at  a  premium  ? 

IV.  Would  it  be  well  to  adopt  special  rules  for  the  exchange  of  the 
subsidiary  coins  ? 

V.  Would  it  be  well  to  expedite  as  far  as  possible  the  exchange  of 
the  old  coins  for  the  new  coins;  and  if  so,  what  would  be  the  chief 
measures  that  might  be  adopted  to  that  end  ? 

Third  question.- — What  measures  ought  to  be  taken  to  bring  about 
the  stability  of  international  exchange  on  the  hyjjothesis  that  the 
ratio  in  weight  to  be  adopted  between  gold  and  silver  is  to  be  that 
of  1  to  32  ? 

The  following  questions  are  to  be  studied  and  solved : 

I.  Can  stability  or  fixity  of  exchange  and  of  the  ratio  between  gold 
and  silver  be  attained  without  suspending  the  free  coinage  of  silver 
on  private  account? 

II.  Can  the  same  objects  be  attained  without  the  formation  of  a 
special  fund  that  shall  assure  or  guarantee  the  exchange  of  the  silver 
coin  for  gold  ?  • 

III.  If  the  answer  be  in  the  affirmative — that  is  to  say,  even  if  the 
formation  of  that  fund  is  not  considered  indispensable — is  it  neverthe- 
less to  be  recommended  to  the  Government,  and  in  what  cases  ? 

IV.  AMiether  the  formation  of  a  special  fund,  that  shall  assure  or 
guarantee  the  exchange  of  the  silver  coin  for  gold,  be  considered  neces- 
sary or  onh'^  advisable,  the  following  among  other  questions  as  to  its 
accumulation  and  operation  are  to  be  considered: 

(a)   Ought  the  fund  to  be  formed  of  gold  or  of  sliver? 
(6)   Ought  it  to  be  formed  in  Mexico  or  abroad  or  both  in  Mexico 
and  abroad  ? 

(e)  \Miat  ought  to  be  its  amount,  at  least  approximately? 

(d)  Ought  it  to  be  administered  by  the  Government  exclusively  or 
by  a  committee  or  corporation  to  be  appointed  by  the  Government  ? 

(e)  What  should  be  the  chief  conditions  of  its  operation? 

V.  Independently  of  the  closing  of  the  mints  to  the  free  coinage  of 
silver  and  the  formation  of  a  monetary  reserve  fund,  are  there  any 
other  measures  which  it  would  be  well  to  advise  the  Government  to 
adopt  in  order  to  bring  about  stability  or  fixity  of  exchange  and  of  the 
ratio  between  gold  and  silver? 

If  the  answer  is  in  the  affirmative,  said  measures  should  be  de- 
scribed in  detail. 

S.  Doc.  128,  58-3 22 


338  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

Fourth  question. — Is  it  advisable  to  counsel  the  adoption  of  special 
measures,  such  as  the  abolition  or  diminution  of  taxes  and  the  like, 
that  will  save  not  only  the  silver-mining  industry  but  export  indus- 
tries in  general  from  the  losses  that  might  accrue  to  them  from  a 
change  of  monetary  system  in  the  Republic  ? 


Annex  No.  2. — Report  of  Messrs.  Fernandez  Leal  and  Joaquin  D.  Casasus, 

Sir:  The  fifth  subcommittee  appointed  to  study  the  various  meas- 
ures to  which  other  nations  have  resorted  to  stabilize  the  rate  of  their 
international  exchange  and  to  solve  their  monetary  difficulties,  drew 
up  a  programme  to  which  its  work  was  to  be  adjusted  and  commis- 
sionecl  the  undersigned  to  frame,  and  give  their  reasons  for,  the  bases 
of  the  ncAV  monetary  system  which  the  Government  of  the  Republic  is 
to  be  counseled  to  adopt. 

The  portion  of  the  programme  of  the  fifth  subcommittee's  work 
assigned  to  its  reads  as  follows : 

First  question. — Which  is  the  monetary  system  whose  adoption  is 
to  be  recommended  to  the  Government  ? 

The  following  points  are  to  be  separately  studied  and  solved : 

I.  Ought  the  free  coinage  of  gold  to  be  permitted  ? 

II.  Ought  the  mints  to  be  closed  to  the  free  coinage  of  silver  on 
private  account  ? 

III.  Ought  the  Government  to  be  authorized  to  coin  a  new  peso 
(dollar)  or  silver  piece,  destined  to  constitute,  at  least  temporarily,  the 
basis  of  the  monetary  circulation  of  the  Republic? 

If  the  answer  is  in  the  affirmative: 

{a)  Ought  that  coin  to  be  of  the  same  weight  and  fineness  as  the 
present  peso  ? 

ih)   Ought  it  to  have  the  same  effigy  as  the  present  peso? 

(c)  What  limitation  ought  to  be  put  upon  the  quantity  of  silver 
money  that  the  Government  is  to  coin  ? 

IV.  Is  it  advisable  to  coin  new  subsidiary  silver  money  ? 
If  the  answer  is  in  the  affirmative : 

(a)   What  class  of  coins  are  to  constitute  such  subsidiary  money? 

(&)   What  should  be  their  fineness? 

(c)   Should  the  coinage  of  the  present  bronze  centavo  be  continued? 

V.  What  should  be  the  legal-tender  capacity  of  the  new  coins  both 
for  private  persons  and  the  Government? 

VI.  Is  it  advisable  to  lay  down  that  the  Government  shall  be 
obliged  to  give  hard  silver  dollars  in  exchange  for  the  subsidiary 
coins  presented  to  it  for  such  exchange? 

If  the  answer  is  in  the  affirmative : 

What  are  the  main  conditions  that  should  be  adopted  for  effecting 
that  exchange? 

The  undersigned  believe  that,  whatever  measures  may  be  adopted 
to  stabilize  the  rate  of  international  exchange,  it  is  absolutely  neces- 
sary to  modify  the  present  monetary  system  in  such  manner  and  in 
such  form  that  the  value  of  our  silver  peso  (dollar)  shall  be  rendered 
wholly  independent  of  the  gold  price  of  the  metal,  silver,  so  that  our 


GOLD    STANDARD   IN    TNTP:RNATI0NAL    TRADE.  339 

inoiioy  may  not  continue  to  sulTor  the  constant  and  brusque  oscillations 
to  which  the  price  of  the  metal  in  question  is  subject. 

In  order  to  attain  this  end,  private  persons  nuist  be  deprived  of  the 
right  to  take  their  silver  bars  to  the  mints  of  the  Republic  to  have 
them  converted  into  coin ;  for,  thouoh  it  is  true  that  the  unlimited 
coinage  of  a  metal  ten.ds  to  give  greater  fixity  to  its  value,  seeing  that 
the  consum})tion  thereof  for  monetary  purj)oses  is  the  largest  and 
most  in)i)ortant  of  all,  it  is  also  true  that  the  value  of  the  metal,  con- 
sidered as  a  commodity,  must  control  the  value  of  the  coins  of  that 
metal  as  long  as  the  holders  of  the  commodity  in  question  are  entitled 
at  their  pleasure  and  Avithout  linutation  to  have  it  converted  into 
monetary  units. 

The  suspension  of  the  coinage  of  any  money  on  private  account 
will  perforce  tend  to  enhance  its  value,  because  it  restricts  the  quan- 
tity of  money  in  circulation  without  abating  the  ever-increasing  de- 
mand which  every  progressive  country  experiences  for  money  in 
order  to  continue  to  carry  on,  Avithout  obstacle  or  hindrance,  its 
commercial  transactions  of  every  kind.  If  the  quantity  of  coins  in 
circulation  can  not  be  increased  in  proportion  to  the  increased  neces- 
sity for  their  use,  and  if  the  utmost  rapidity  that  can  be  imparted  to 
the  circuhition  does  not  suffice  to  meet  the  necessity  of  employing  a 
larger  quantity  of  coins,  it  is  unquestioned  that,  b}'  the  natural  opera- 
tion of  the  law  of  supply  and  demand,  the  value  of  such  coins  will 
be  enhanced. 

This  enhancement  of  the  value  of  the  coins  in  circulation  must  have 
a  limit,  and  if  that  limit,  in  countries  governed  by  the  same  i^rinciples 
that  inform  monetary  laAvs,  is  fixed  by  the  international  trade  in  pre- 
cious metals  Avhich  attracts  them  to  points  where  there  is  most  need 
of  them  and  drains  them  from  those  markets  where,  by  reason  of 
their  very  abundance,  their  price  tends  downward,  the  limit  in  ques- 
tion must  be  artificially'  fixed  in  countries  where  the  monetary  laws 
are  not  based  on  the  fundamental  princi])les  that  should  control  them. 

In  order  to  fix  said  limit  it  is  indispensable  to  associate  the  value 
of  the  silver  unit  whose  coinage  is  suspended  Avith  a  gold  coin, 
whether  the  latter  circulates  or  not,  Avhether  its  free  coinage  is  or  is 
not  permitted. 

The  raison  d'etre  of  the  limit  consists  in  the  fact  that  Avhen  the 
enhanced  value  of  the  circulating  silver  coins,  due  to  their  scarcity, 
has  once  passed  that  limit  gold  Avill  be  imported,  and  Avhether  it  be 
coined  or  not,  Avill  regulate  prices  and  Avill  tend  to  reduce  the  A^alue  of 
the  silver  coin  and  bring  it  back  to  its  proper  leA^el. 

The  aiJi)lication  of  this  system  is  nothing  else  but  the  adoption  of 
gold  monometalism  Avithout  gold  coins  in  circulation.  Gold,  as  the 
ideal  standard  to  measure  values,  Avill  govern  prices;  and  for  circu- 
lating purposes  the  money  Avill  consist  of  disks  of  the  metal  sih^er, 
Avhose  value  Avill  not  depend  on  the  sih^er  Avhich  they  contain,  but  on 
their  scarcity  and  the  possibilty  of  their  couA^ersion  into  gold  coin. 
The  sih'er  coins  in  circulation,  though  they  may  be  receiA'ed  as  unlim- 
ited legal  tender,  Avill  n(>cessarily  be  based  on  the  ]3rinciples  that  regu- 
late the  emission  of  subsidiary  coins,  because  they  can  not  bo  used  for 
exportation  and  by  an  imperatiA'e  necessity  Avill  remain  exclusively 
confined  to  the  interior  circulation  of  the  country  in  Avhich  they  are 
issued. 


340       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

In  accordance  with  the  foregoing  outlines,  the  new  monetary  system 
must  repose  on  the  following  principles: 

I.  The  opening  of  the  mints  to  the  free  coinage  of  a  new  gold  piece. 

II.  The  closing  of  the  mints  to  the  free  coinage  of  silver  on  private 
account. 

Without  doubt,  during  the  first  years  in  which  this  system  becomes 
operative,  gold  will  not  enter  into  the  circulation;  but  it  is  to  be 
hoped,  Avhen  the  parity  adopted  between  the  two  metals,  gold  and 
silver,  is  attained  and  the  value  of  the  silver  money  due  to  its  scarcity 
tends  to  exceed  that  parity,  that  gold  will  be  attracted  to  our  mints. 

The  possibility  of  gold  being  coined  involves  the  necessity  of  de- 
termining the  weight  and  fineness  of  the  new  monetary  unit  of  that 
metal  and  of  the  coins  Avhich  may  have  to  be  struck  as  multiples 
thereof. 

In  order  to  fix  the  fineness  and  weight  of  our  gold  coinage  we  must 
take  into  account  the  following  questions : 

I.  Is  the  new  gold  coin  to  be  based  on  a  ratio  of  1  to  32  between 
gold  and  silver  ? 

II.  Is  it  preferable  to  make  our  gold  coin  a  submultiple  of  the 
pound  sterling  or  the  American  dollar  or  a  multiple  of  the  franc,  in 
order  to  facilitate  our  commercial  transactions  with  England,  the 
United  States,  and  France? 

III.  Ought  the  new  gold  coin  to  be  of  the  same  fineness  as  the 
present  one,  authorized  by  our  monetary  laws,  or  ought  we  to  adjust 
it  to  the  decimal  system  ? 

The  fifth  subcommittee  when  initiating  its  labors  and  taking  into 
account  the  brusque  oscillations  which  the  price  of  silver  on  the  Lon- 
don market  has  passed  through  of  late,  did  not  deem  fit  to  decide 
whether  the  ratio  between  gold  and  silver  vchicli  shall  serve  as  the 
basis  for  the  stabilization  of  our  international  exchange,  should  be 
comprised  between  the  minimum  of  1  to  36  and  the  maximum  of 
1  to  32,  Nevertheless,  it  saw  fit  to  recommend  that  the  ratio  of 
]  to  32  should  be  adopted  as  the  hypothetical  basis  of  all  the  studies 
that  were  to  be  undertaken  being  the  ratio  that  would  offer  the  fewest 
difficulties  in  its  adoption. 

The  ratio  of  1  to  32  may,  however,  occasion  a  drawback  worthy  of 
being  taken  into  consideration  in  the  creation  of  our  ncAv  gold  cur- 
rency, for  that  ratio  would  mean  that  said  currency  would  be  divorced 
from  all  other  gold  currencies  at  present  in  use,  which  assuredly 
would  not  tend  to  foment  the  future  development  of  our  commercial 
relations. 

If  gold  is  the  monetary  metal  par  excellence  and  is  destined  to 
perform  the  function  of  international  money  wherewith  the  trade 
balances  among  nations  are  to  be  settled,  it  is  of  the  highest  impor- 
tance to  bring  about  or  to  accentuate  a  more  marked  tendency  daily 
toward  the  unification  of  gold  coins. 

Therefore,  to  make  Mexico's  new  gold  coin  a  multiple  or  submulti- 
ple of  the  coins  already  in  use  among  the  nations  with  which  Ave  culti- 
vate the  closest  commercial  relations  is  to  add  another  factor  to  the 
future  development  of  our  coinuierce. 

It  seems  idle  to  discuss  whether  the  new  coin  ought  or  ought  not 
to  conform  to  the  decimal  system.  In  Mexico  the  decimal  system 
rules  and  it  is  necessary  to  adopt  its  principles.  But,  independently 
of  that,  it  is  impossible  to  conceive  the  emission  of  a  new  coin  save  in 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       341 

obedience  to  those  principles.  Our  financiers  have  been  sufficiently 
strong  in  their  condemnation  of  the  fact  that  our  present  gold  coin 
is  0.875  fine  and  not  0.900  fine  and  to  justify  their  condemnation  it 
is  sufficient  to  state  that  Mexico  is  the  only  civilized  nation  in  which 
gold  coins  continue  to  be  struck  at  the  old  standard  of  fineness  of  21 
carats. 

The  law  of  November  28,  18()T,  directed  that  the  coins  should  bear 
an  inscrijition  showing  the  fineness  of  the  metal  in  thousaudlhs,  for- 
getting that  this  was  not  sufficient  in  order  to  .assure  compliance  with 
the  metric  decimal  system. 

The  new  Mexican  dollar,  at  the  ratio  of  1  gram  of  gold  to  32  grams 
of  silver,  would  contain  : 

Gram. 

Pure  gold 0.76.38 

Gold  0.900  fine .8480 

If  the  new  gold  dollar  is  made  the  one-tenth  part  of  the  pound 
sterling,  it  would  contain : 

Gram. 
Pure  gold 0.  73223 

Gold  0.900  fine .  813G 

If  the  new  gold  dollar  is  made  the  one-half  of  the  American  dollar, 
it  AYould  contain : 

Gram. 

Pure  gold 0.7523 

Gold  0.900  Hue .8359 

If  the  new  gold  dollar  were  made  equal  to  2.50  francs,  it  would 
contain : 

Gram. 

Pure  gold 0.7258 

Gold  0.900  fine .  8064 

The  ratios  between  gold  and  silver,  according  as  the  submultiple  of 
the  English  or  American  coins  or  the  multiple  of  the  French  coin 
are  taken  as  the  basis,  would  be  as  follows: 

Grams. 

Oiie-tonth  part  of  the  pound  sterling,  the  ratio  would  be 1  to  33.  37 

One-half  of  the  American  dollar,  the  ratio  would  he 1  to  .32.  48 

Multiple  of  the  franc,  ratio 1  to  3.3.67 

As  will  be  seen,  if  the  ratio  of  1  to  32  is  adopted,  the  gold  peso  will 
be  a  new  coin  different  from  all  others  in  existence,  because  it  will 
have  to  contain — 

In  excess  over  the  one-tenth  part  of  the  pound  sterling,  in  gold  of  the  fine-  Gram. 

ness  of  0.900 0.0350 

In  excess  over  the  half  of  the  American  dollar i .  0127 

In  excess  over  the  multiple  of  the  franc .0422 

The  undersigned  think  that  preferably  the.  American  half-dollar 
ought  to  be  adopted  as  the  new  gold  peso  both  because  on  that  basis 
we  approach  as  much  as  possible  to  the  ratio  of  1  to  32,  and  because 
80  i^er  cent  of  our  import  and  export  trade  is  carried  on  with  the 
United  States,  the  nation  from  which  we  buy  most  of  what  Ave  need 
and  to  which  we  sell  most  of  our  export  products.  It  is  true  that  the 
world's  center  of  mercantile  transactions  is  London,  and  that  the 
j)ound  sterling  is  the  coin  that  serves  for  the  settlement  of  interna- 
tional trade  balances;  but  undoubtedly  it  is  far  more  important  to 
us  that  our  coin  should  be  a  submultiple  of  the  dollar,  which  itself  is 
a  submultiple  of  the  pound  sterling,  seeing  that  out  commerce  with 


342  GOLD    STANDARD   IN    INTERNATIONAL   TRADE. 

England  is  insignificant  in  comparison  with  our  commerce  with  the 
United  States  of  America. 

The  new  gold  dollar,  by  reason  of  its  small  size,  would  never  be 
coined ;  but  for  purposes  of  circulation  we  could  adopt  the  "  escudo  " 
of  $5  with  3.7G15  grams  of  pure  gold  or  4.1795  grams  of  gold  0.900 
fine  and  the  $10  ounce  Avith  T.523  grams  of  pure  gold  or  8.359  grams 
of  gold  0.900  fine.  The  $5  "  escudo  "  would  be  a  coin  of  much  use  in 
circulation  because  it  would  fill  a  place  corresponding  to  the  10-franc 
piece  in  France  and  other  countries  of  the  Latin  Union  and  the  half- 
severeign  in  England ;  and  the  $10  ounce  would  be  the  coin  for  large 
transactions,  taking  the  role  of  the  pound  sterling  and  the  piece  of 
20  francs  or  20  marks. 

The  undersigned  have  not  thought  fit  to  recommend  the  coinage  of 
the  old  ounce  of  $20,  for  a  very  long  experience  demonstrates  that  it  is 
unsuited  for  circulation  and  is  only  serviceable  for  hoarding  purposes. 

The  basis,  therefore,  of  the  monetary  law  would  be  the  gold  dollar, 
and  the  coins  in  circulation  would  be  the  "  escudo  "  of  $5  and  the 
ounce  of  $10. 

The  closing  of  the  mints  to  the  free  coinage  of  silver  on  private  ac- 
count is  the  measure  which  the  new  monetary  system  most  urgently 
demands,  for  on  its  adoption  depends  the  dissociation  that  will  de- 
velop between  the  value  of  our  dollar  in  the  interior  circulation  and 
the  value  of  the  metal — silver — which  it  contains. 

The  adoption  of  this  measure  involves  the  study  of  the  following 
questions : 

I.  Ought  the  present  dollar,  which,  whatever  else  it  is,  is  chiefly  one 
of  our  oldest  historical'  monuments  and  the  trade  coin  par  excellence 
of  America  and  the  Far  East,  to  be  retained  in  circulation  ? 

II.  Ought  a  new  silver  dollar  to  be  adopted  for  the  purpose  of  dif- 
ferentiating it  from  the  present  one  ? 

III.  May  the  coinage  of  the  old  dollar,  as  a  trade  dollar,  destined 
for  exportation,  continue  to  be  permitted? 

The  undersigned  have  no  hesitation  in  this  respect,  for  the}^  con- 
sider that  the  coinage  of  a  new  dollar  is  indisi)ensable. 
Their  opinion  is  based  on  the  following  considerations : 

I.  The  necessity  of  preventing  the  importation  of  the  old  Mexican 
dollars. 

II.  The  expediencj^  of  rendering  more  difficult  the  counterfeiting 
of  the  coin,  which  is  calculated  to  be  greatly  stimulated  by  the  differ- 
ence between  the  value  of  the  coin  and  the  value  of  the  metal  consti- 
tuting it. 

III.  The  complete  disappearance  of  all  the  advantages  previously 
associated  with  the  old  Mexican  dollai*. 

As  the  Mexican  dollar  has  not  merely  been  our  national  coin,  but  a 
trade  dolhir  that  has  circulated  and  still  circulates  as  unlimited  legal 
tender  in  China,  in  the  British  possessions  in  the  Far  East,  and  in  the 
Philippines,  it  would  be  very  easy  to  import  it  back  into  the  country 
in  large  quantities  in  order  to  take  advantage  ef  the  difference  in 
value  which  the  coin  may  attain  as  compared  with  the  value  of  the 
metal  which  it  contains.  As  the  basis  of  the  monetary  reform  consists 
in  imparting  to  the  dollar  a  greater  value  than  belongs  to  it  as  silver 
bullion,  it  is  unquestioned  that  the  reform  would  not  fulfill  its  ()bject, 
if  the  reimportation  of  the  millions  of  dollars  circulating  outside  of 
the  country  were  to  be  permitted. 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  843 

The  mere  prohibition  of  their  importation  or  the  creatioii  of  a  dnty 
that  wouhl  be  taiitainoiiiit  i^ractically  to  such  a  prohibition  wouhl  not 
he  a  sufficiently  efficacious  measure  for  the  attainment  of  the  Govern- 
ment's  wishes.  Specuhition  glides  throuoh  doors  that  can  not  be 
shut  in  its  face,  and  finds  a  locus  standi  that  can  not  be  withdrawn 
from  under  it. 

The  cost  of  coining  the  new^  dollar  w^ould  be  more  than  compen- 
sated by  the  guaranty  which  it  would  afford  to  the  future  circulation 
of  the  country. 

But,  independently  of  this  circumstance,  it  must  be  borne  in  mind 
that  our  present  dollar  leaves  much  to  be  desired  as  a  coin,  and  read- 
ily lends  itself  to  the  purposes  of  the  counterfeiter.  The  necessity  of 
conserving  the  prestige  which  our  dollar  had  won  in  the  Far  East, 
and  of  maintaining  the  higher  value  which  it  once  attained  as  a  coin 
over  its  bullion  value,  has  acted  as  an  insuperable  obstacle  to  the 
modification  of  our  dollar  by  the  Government  in  such  manner  as  to 
render  its  falsification  if  not  impossible  at  any  rate  extremely  diffi- 
cult. Our  dollar  is  very  far  from  being  an  artistic^  model,  as  every 
coin  ought  to  be,  and  the  imperfections  of  its  design,  the  poor  finish 
and  indistinctness  of  its  milling  invite  counterfeiters  to  imitate  it. 

Now  if  the  old  dollar  is  retained,  the  enhancement  of  value  given  to 
it  over  its  bidlion  value  will  still  further  encourage  counterfeiters,  for 
they  will  be  able  to  counterfeit  it  without  altering  either  its  fineness 
or  its  weight,  and  such  counterfeiting  will  produce  the  very  effects 
which  it  is  desired  to  obviate  by  prohibiting  the  reimportation  of 
Mexican  dollars. 

On  the  other  hand,  what  is  to  be  gained  by  retaining  the  old 
dollar?  Except  that  the  cost  of  coining  a  new  dollar  would  be 
saved,  it  can  not  be  said  that  any  advantage  would  be  secured.  The 
value  in  excess  of  its  bullion  value  once  attained  by  our  dollar  on  the 
London  market  no  longer  exists,  and  the  new  monetary  laws  which 
are  on  the  point  of  being  issued  for  the  French  and  English  posses- 
sions, for  the  Philii)pines,  and  perhaps  for  the  Chinese  Empire,  wdll 
deprive  it  of  the  legal  tender  character  wdiich  it  has  hitherto  enjoyed. 

In  fact,  in  a  very  short  time  the  new  dollar  wdiich  the  American 
Government  has  ordered  coined  for  the  Philippines  will  be  put  into 
circulation;  the  dollar  of  Indo-China  already  circulates  in  such  quan- 
tities in  the  French  possessions  in  the  Far  East  that  practically  it  has 
almost  banished  the  Mexican  dollar;  the  British  dollar  has  replaced 
the  Mexican  dollar  in  the  Sti-aits  Settlements,  Hongkong,  and 
Labuan,  and  the  international  exchange  commission  appointed  by 
our  Government  to  ap])roach  foreign  governments  has  undertaken  to 
draw  the  attention  of  the  civilized  world  to  the  necessity  of  the  adop- 
tion by  China  of  a  monetary  system  of  its  own. 

The  old  Mexican  dollar,  when  these  measures  shall  have  been 
adopted,  will  have  come  to  the  end  of  its  career  as  a  trade  coin,  and, 
like  the  thaler  of  Maria  Theresa,  it  will  surviA^e  only  as  a  memory  of 
what  was  once  a  factor  of  civilization  and  progress  in  the  ancient 
nations  of  the  East. 

But  if  it  is  necessary  to  coin  a  new  dollar,  ought  it  to  be  of  the 
same  weight  and  fineness  as  the  present  dollar? 

In  what  propoi-tions  ought  it  to  be  coined? 

An  obvious  argument  of  exjx'diency  demands  that  the  new  coin 
shall  have  the  same  weight  and  lincness  as  the  present  dollar.     That 


344       GOLD  STANDAUD  IN  INTERNATIONAL  TRADE. 

argument  is  the  desirability  of  not  altering  the  basis  of  pending  con- 
tracts throughout  the  Republic. 

As,  in  accordance  with  the  precepts  of  civil  law  all  presentations  in 
money  must  be  made  in  the  kind  of  money  agreed  upon,  and,  if  this 
is  not  possible,  in  the  quantitj^  of  current  coin  that  shall  coincide  with 
the  real  value  of  the  money  owed,  a  stipulation  has  always  been  intro- 
duced into  contracts  to  the  ell'ect  that,  in  the  event  of  a  new  money 
coming  into  existence,  the  debtor  will  only  be  held  to  have  met  his 
liabilities  when  he  shall  have  delivered  a  quantity  coinciding  in  fine- 
ness and  weight  with  the  present  coin. 

Now,  in  order  that  this  stipulation,  v^hich  is  countenanced  by  the 
civil  law,  may  be  complied  with  without  imposing  a  sacrifice  on  the 
debtor  and  originating  difficulties  of  every  kind  in  the  carrying  out 
of  pending  contracts,  it  is  necessary  that  in  creating  a  new  coin  said 
coin  shall  be  of  the  same  weight  and  fineness  as  tbat  at  present  in 
circulation,  in  order  that  it  may  be  received  without  difficulty  and 
that  payments  made  therein  may  constitute  a  complete  release  to 
debtors. 

On  the  other  hand,  in  consummating  a  monetary  reform  it  is  the 
duty  of  the  public  administration,  as  an  essential  condition  of  the  suc- 
cess of  that  reform,  to  talie  such  measures  as  will  assure  the  ready 
acceptance  of  the  new  coin  by  all. 

Now,  to  assure  its  acceptance  by  the  public  without  difficulty,  it  is 
necessary  that  it  shall  continue  to  constitute  a  complete  release  from 
debt  to  all  persons  through  whose  hands  it  passes  and  that  it  shall 
serve  definitely  to  satisfy  and  extinguish  pending  obligations. 

This  assuredly  does  not  mean  that  the  neAv  silver  dollar  will  have  to 
contain  27.073  grams  of  a  fineness  of  0.90277.  We  think  that  the  new 
dollar  may  be  considered  equal  to  the  old  one  if  it  contains  the  same 
quantity  of  pure  silver — that  is  to  say,  the  24.441  grams  contained  by 
the  old  Mexican  dollar.  The  fineness  may  be  0.900,  and  what  may 
be  lost  through  the  difference  in  fineness  will  be  made  up  in  weight, 
so  that  instead  of  containing  27.073  grams  it  will  contain  27.156 
grams. 

Thus  the  new  dollar  may  be  equal  to  the  old  one  and  be  a  decimal 
coin  containing  27.156  grams  of  silver  0.900  fine. 

In  what  quantities  is  the  new  dollar  to  be  coined  ? 

As  the  object  of  the  reform  is  to  enhance  the  gold  value  of  silver 
coin,  and  to  that  end  it  will  be  necessary  to  deprive  private  persons  of 
the  right  of  having  their  silver  bars  converted  into  coins,  it  is  unques- 
tionable that  the  quantity  of  new  dollars  to  be  emitted  must  be  equal 
to  the  (juantity  at  present  in  circulation. 

There  is  no  reason  for  curtailing  the  quantity  in  circulation,  and 
there  would  be  no  object  in  leaving  a  portion  of  the  old  coins,  which 
would  be  no  longer  available  for  use  in  connnercial  transactions,  in 
the  hands  of  their  present  holders  instead  of  exchanging  them  for  the 
new  coins. 

On  the  other  hand,  it  would  not  be  advisable  to  authorize  the  Gov- 
ernment to  i)ut  a  greater  quantity  of  the  new  dollars  into  circulation, 
for  this  would  tend  to  delay  the  success  of  the  monetary  reform,  seeing 
that  the  greater  the  excess  of  the  quantity  of  coins  provided  over  the 
recjuirements  of  circulation,  the  greater  would  be  the  difficulty  of 
attaining  the  parity  inherent  to  the  ratio  at  which  the  two  metals, 
gold  and  silver,  would  be  coined. 


GOLD  STANDAKi)  IN  INTERNATIONAL  TKADK.       345 

In  accordance  with  the  above  considerations  the  new  coin  may  con- 
form to  the  decimal  system;  it  will  be  equal  in  value  to  the  old  coin 
because  it  will  contain  the  same  quantity  of  pure  silver;  it  will  bear 
a  different  effigy  in  orcler  to  distinguish  it;  and  it  will  be  issued  in 
quantities  sufficient  to  be  given  in  exchange  for  all  the  old  coins  at 
present  in  circulation. 

No  one  can  question  the  expedience  of  taking  iidvantage  of  the 
monetary  reform  that  will  be  carried  out  to  issue  new  subsidiary  or 
token  coins  of  silver. 

As  a  matter  of  fact,  the  present  subsidiary  silver  coinage,  or,  in 
other  words,  the  jiieces  of  50,  20,  10,  and  5  cents  at  present  in  circula- 
tion have  been  and  are  subject  to  the  great  drawback  that  the  metal 
from  wdiich  they  are  coined  is  of  the  same  fineness  as  the  metal  from 
which  the  dollar  is  coined;  that  is  to  say,  0.90277,  and  that  their 
Aveight  is  proportional  to  that  of  the  monetary  unit,  so  that,  in  conse- 
quence, they^are  unlimited  legal  tender. 

Our  subsidiary  coins  do  not  conform  to  the  principles  that  should 
regulate  such  coins;  for  if  they  are  and  ought  to  be  exclusively 
destined  to  facilitate  the  small  transactions  which  the  life  of  a  com- 
munity rendei-s  indispensable,  their  legal-tender  capacity  ought  to 
be  limited  and  the  value  of  the  metal  w^iich  they  contain  ought  to  be 
less  than  their  value  as  coins. 

The  subsidiary  coinage  of  almost  all  the  nations  of  Europe  is  now 
in  conformity  Avith  these  principles,  and  owing  to  that  circumstance  it 
is  able  to  remain  in  circulation  and  to  render  the  important  services 
for  which  it  is  intended. 

When  a  subsidiary  coinage  is  made  of  a  metal  of  which  the  value 
is  equal  to  its  coinage  value,  it  can  not  easily  be  kept  in  circulation, 
for  such  coins  prove  exportable  like  coins  that  are  unlimited  legal 
tender.  , 

If  a  subsidiary  coinage  has  very  precise  and  necessary  functions  to 
perform,  it  must  not  be  exportable;  it  must  always  remain  in  the 
interior  of  the  country,  and  in  order  that  those  objects  may  be  attained 
without  any  difficulty  there  must  be  a  difference  between  the  conven- 
tional value  of  such  a  coinage  and  the  value  of  the  metal  wiiich  it 
contains. 

In  order  to  obviate  the  accumulation  of  this  conventional  coinage 
in  the  hands  of  the  public,  its  legal-tender  capacity  must  be  restricted 
to  a  given  quantity.  This  restriction  is  the  rule  th^t  secures  an 
equitable  distribution  of  this  class  of  coin  in  the  circulation,  for 
without  detriment  to  the  interests  of  its  holders  it  renders  the  services 
for  which  it  is  exclusively  intended. 

In  accordance  with  these  principles,  which  are  the  soundest  knoAvn 
in  reference  to  this  question,  the  undersigned  are  of  the  opinion  that 
the  new  subsidiary  coins,  though  proportional  in  weight  to  the  mone- 
tary unit,  ought  to  be  0.800  fine. 

This  would  be  a  very  opportune  occasion  to  withdraw  from  circula- 
tion the  silver  5-cent  piece,  which  is  too  small  a  coin,  and  is  subject  to 
rapid  wear  OAving  to  the  frequency  with  which  it  enters  into  the  daily 
transactions  of  the  people.  All  countries  which  had  a  coin  similar  to 
our  silver  5-cent  piece,  such  as  the  English  3-penny  piece  and  the 
American  coin  worth  one-twentieth  of  a  dollar,  have  either  with- 
drawn it  from  circulation  or  replaced  it  with  a  nickel  coin.  Perhaps 
in  our  case  u  substitution  of  this  kind  would  not  be  opportune,  and  it 


346  GOLD   STANDARD    IN    INTERNATIONAL   TRADE. 

would  be  better  to  siipj)ress  the  coin  in  question  absolutely,  without 
issuing  a  new  one  in  its  stead. 

The  half-dollar,  the  20-cent  piece,  and  the  10-cent  piece  will  then  be 
of  the  following  weight  and  fineness : 

Grams. 

The  half  dollar  will  contain  in  pure  silver 10.8624 

The  half  dollar  will  contain  in  silver  O.SUO  fine 13.  .578 

The  20-cent  piece  will  contain  in  pure  silver 4.  .3448 

The  20-cent  piece  will  contain  in  silver  0.800  fine 5.431 

The  10-cent  piece  will  contain  in  pure  silver 2.  172 

The  10-cent  piece  will  contain  in  silver  0.800  fine 2.  71.5 

The  legal-tender  capacity  of  the  neAV  subsidiary  coinage  may  be 
limited  to  $20,  this  limit  being  observed  both  in  the  relations  of  pri- 
vate persons  among  one  another  and  of  private  persons  with  the  Gov- 
ernment. This  limit  would  be  more  or  less  the  same  as  that  to  which 
silver  money  is  subject  in  England,  where  its  legal-tender  capacit}?^ 
does  not  exceed  40  shillings.  The  limit  in  question  is  sufficiently 
prudent  and  will  suffice  for  the  object  had  in  view. 

The  undersigned  do  not  consider  that  it  is  necessary  to  introduce 
any  change  in  the  present  bronze  centavo. 

Since  the  emission  of  the  centavo  was  adjusted  to  the  principles 
which  should  regulate  the  emission  of  such  coins  no  further  difficulty 
has  occurred  in  its  circulation.  It  is  received  by  the  people  without 
hesitation  and  every  day  the  field  of  its  usefulness  grows  wider. 

The  decimal  coinage  question,  which  for  so  many  years  was  justly 
a  source  of  anxiety  to  the  public  authorities,  has  been  definitely 
solved,  and  the  mere  incorporation  of  the  present  laws  into  the  new 
monetary  law  would  suffice  to  assure  the  continuation  of  the  coinage 
in  the  future,  subject  to  the  same  system  as  at  present  regidates  its 
emission. 

The  diameter  and  margin  as  to  weight  and  fineness  of  the  new 
silver  and  gold  coins  may  continue  to  be  the  same  as  provided  by  the 
decree  of  November  28,  1867. 

The  undersigned  beg  leave  to  recommend  the  fifth  subcommittee  to 
draw  the  Government's  attention  to  the  expediency  of  not  collecting 
any  tax  on  the  mintage  of  gold  coins. 

It  is  probable  that  during  the  early  years  of  the  prevalence  of  the 
new  system,  gold  will  not  be  attracted  to  the  mints;  but,  in  order  to 
encourage  the  holders  of  gold  to  convert  their  bars  into  coin,  it  would 
perhaps  be  a  wise  step  to  make  the  coinage  thereof  free.  The  British 
Empire  has  in  this  connection  set  an  example  which  is  particularly 
worthy  of  imitation. 

The  undersigned  have  concluded  the  task  assigned  to  them  by  the 
fifth  subconmiittee.  They  regret  that  they  have  not  had  time  to  make 
a  more  profound  study  of  the  questions  involved  in  the  establishment 
of  a  new  monetary  system,  but  they  have  endeavored  in  as  short  a 
time  as  possible  to  manifest  their  ideas  in  order  that  they  may  serve 
as  the  basis  of  studies  for  the  final  resolutions  that  are  to  be  adopted. 

Joaquin   D.  Casasus. 
M.  Fernandez   Leal. 

Mexico,  September  29, 1003. 


GOLD   STANDARD    IN    INTERNATIONAL    TRADE.  847 

Annex  No.  H — Report  of  Messrs.  Kicarho  Granados  and  Everado  IIegewiscii. 

To  the  'president  of  tlie  ffth  Huheomm'dtee 

of  the  moiietari/  eommission,  present: 

In  the  distribution  of  work  adoptod  l\y  the  fifth  subconnnittec,  with 
a  view  to  the  formation  of  a  project  of  monetary  reform,  the  second 
question,  referriui;  to  the  transitiorial  measures  that  shoukl  be  adopted 
tt)  i)hK'e  the  monetary  circuhition  on  a  new  basis  at  tlie  hyjiothetical 
ratio  between  aohl  and  silver  of  1  to  ;'>2,  was  assigned  to  us.  In  the 
form  wherein  it  was  submitted  to  us  the  question  was  as  foHows: 

What  transitional  measures  should  be  adopted  with  a  view  to  the 
implantation  of  the  new  monetary  system  ? 

The  following  questions  are  to  be  studied  and  solved : 

I.  Can  and  ought  the  Mexican  Government  to  prohibit  the  importa- 
tion into  the  Republic  of  Mexican  dollars  that  have  been  shipped 
abroad  ? 

II.  What  quantity  of  the  new  coins  ouglit  the  Government  to  have 
in  readiness  before  beginning  to  put  the  new  monetary  system  into 
execution  ? 

III.  Ought  the  present  coins  to  be  exchanged  for  the  new  coins  at 
par,  at  a  discouut.  or  at  a  premium? 

lY.  Would  it  be  well  to  adopt  special  rules  for  the  exchange  of  the 
subsidiary  coins? 

V.  Would  it  be  well  to  expedite,  as  far  as  possible,  the  exchange  of 
the  old  coins  for  the  new  coins,  and  if  so,  what  would  be  the  chief 
measures  that  might  be  adopted  to  that  end  ? 

We  were  certainly  not  impervious  to  the  difficulties  which  the  solu- 
tion of  the  present  problem  involves,  and,  fearing  that  the  exclusive 
application  thereto  of  scientific  theories  might  lead  us  into  serious 
errors,  we  thought  that  the  safest  course  was  to  look  for  precedents  in 
other  countries  whose  situation  has  been  similar  to  that  in  which  we 
are  placed;  to  draw  inferences  from  the  teachings  of  practice  and 
to  fill  in  or  correct,  to  the  best  of  our  ability,  the  gaps  or  deficiencies 
that  might  seem  to  us  to  exist  in  the  methods  used  in  like  circumstances 
by  foreign  governments  when  those  methods  came  to  be  apiDlied  to 
our  own  case.  The  present  epoch,  from  a  monetary  point  of  view,  is 
characterized  by  continuous  decline  and  violent  fluctuations  in  the 
value  of  silver  as  compared  with  gold,  and  in  vieAV  of  that  fact  we 
have  given  our  attention  to  the  study  of  the  monetary  reforms  intro- 
duced during  the  last  twelve  years  in  Austria-Hungary,  Japan, 
British  India,  and  Peru.  AYe  have  refrained  from  entering  into  con- 
siderations in  regard  to  such  countries  as  Chile  and  Argentina,  in 
which,  for  various  reasons  not  directly  connected  with  the  difficulties 
that  are  inherent  to  the  question,  the  desired  reform  has  so  far  been 
frustrated. 

Before  the  year  1848  the  monetary  unit  of  the  Austrian  Empire  was 
the  silver  florin,  weighing  14.031  grams;  but  political  events  and  the 
war  of  that  year  led  the  Government  to  authorize  the  national  bank 
to  issue  a  large  quantity  of  legal-tender  paper  currency,  so  that  in 
consequence  silver  disappeared  from  circulation.  The  fluctuations  in 
the  premium  of  the  silver  florin  as  compared  with  paper  in  the  twenty- 
five  years  which  followed  are  not  of  great  interest  to  us.  But  a  fact 
tliat  is  worthy  to  be  taken  into  consideration  is  that  when  the  rapid 


848  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

decline  of  silver  in  the  year  1873  set  in,  it  had  very  little  or  no  effect  on 
the  value  of  the  bank  notes  as  expressed  in  gold,  and,  beginning  with 
the  year  1878,  the  apparent  anomaly  of  a  paper  florin  being  worth 
more  than  the  coin  for  which  it  stood  became  a  reality.  This  was  due, 
no  doubt,  to  the  fact  that  the  (Tovernment  kept  the  circulation  within 
certain  limits  and  did  not  make  use  of  its  right  to  redeem  said  circula- 
tion in  silver,  having  already  made  up  its  mind  to  adopt  the  gold 
standard.  P)ut  this  fact  demonstrates  to  the  point  of  evidence  that 
the  value  or  purchasing  power  of  the  monetary  unit  depends  almost 
exclusively  on  the  quantity  thereof  in  circulation.  Though  this 
phenomenon  is  instructive  and  in  consequence  useful  to  our  studies,  it 
must  be  acknowledged,  on  the  other  hand,  that  the  methods  adopted 
by  the  Austro-Hungarian  Government  are  inapplicable  to  our  case  in 
Mexico,  for  in  passing  from  a  fiduciary  standard  to  the  gold  standard 
that  Government  was  easily  able  to  adjust  the  value  of  the  new  unit 
with  entire  exactness  to  the  average  value  of  the  old  imit  in  the  last 
ten  years,  which  it  would  not  have  been  able  to  do  if  the  old  unit  had 
been  of  silver,  as  any  advance  in  the  value  of  that  metal  subsequent  to 
the  conversion  would  have  produced  an  exodus  of  silver  in  accordance 
with  Gresham's  well-known  law.  Similarity  of  circumstances,  there- 
fore, does  not  exist  between  Mexico's  situation  at  present  and  the  situa- 
tion of  Austria-Hungary  when  that  country  effected  its  last  monetary 
reform. 

The  Government  of  Japan  had  declared  itself  in  favor  of  the  gold 
standard  in  1871,  but  certain  errors  committed  at  the  time  that  the 
measure  was  adopted,  the  civil  war  of  1877,  the  diversity  of  silver 
coins,  and  the  excessive  quantity  of  paper  money  in  circulation 
hindered  the  reform  for  some  time,  and  it  was  not  until  the  year  1897, 
after  the  war  with  China,  that  the  indemnity  paid  b}"  the  latter  coun- 
try was  utilized  to  introduce  the  gold  standard  once  for  all  without 
restrictions  and  qualifications.  With  a  view  to  rendering  this  meas- 
ure effective,  the  31st  day  of  July,  1898,  was  fixed  as  the  last  date  for 
exchanging  the  necessary  portion  of  silver  in  circulation  for  the  new 
gold  coin,  and  in  this  way  the  sum  of  45,588,000  yen  was  exchanged. 
The  silver  yen  is  equivalent  to  the  Mexican  dollar,  and  the  ratio  in 
Avhich  the  new  gold  yen  was  coined,  with  respect  to  the  silver  yen, 
was  1  to  32. 

It  would  be  of  considerable  interest  from  our  point  of  view  to 
study  this  reform  more  in  detail  were  our  Government  inclined  to  fol- 
low the  example  of  Japan.  That  example  seems  to  us  personally 
most  worthy  of  imitation,  but,  seeing  that  the  majority  of  the  mone- 
tary commission  do  not  share  that  view  and  that  public  opinion  is 
not  yet  sufficiently  prepared,  we  will  confine  ourselves  to  what  aac  have 
already  said  and  will  proceed  to  examine  other  examples  that  are 
suited  to  our  purpose. 

Refraining,  therefore,  from  pointing  out  the  lessons  which  the 
example  of  Ja])an  might  afford  us,  we  proceed  to  take  up  the  examples 
of  British  India  and  Peru  as  more  suited  to  be  taken  into  considera- 
tion under  the  present  circumstances. 

The  silver  rupee,  which  before  the  depreciation  of  the  white  metal 
was  worth  2s.,  or  24d.,  was  proclaimed  tlie  legal  coin  of  India  in 
1835.  The  value  of  that  coin  liaving  in  the  year  1S7()  falk^i  to 
18|d.,  certain  associations  petitioned  (he  Indian  government  to  sup- 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       349 

])ross  the  free  coinno-e  of  silver;  but  on  that  occasion  the  answer  given 
to  them  was  that  there  was  no  reason,  for  the  present,  to  modify  the 
existin<j:  staiKhirth  As  after  that  dechiration  the  depreciation  of 
sih'er  continued  and  its  fluctuations  heoau  seriously  to  affect  trade, 
the  government  in  1878  made  up  its  mind  to  consider  the  adoption 
of  the  gold  standard,  with  the  proviso  that  the  circulating  medium 
should  continue  to  be  composed  exclusively  of  silver,  to  wdiicli  the 
people  had  become  accustomed.  Some  years  elapsed,  however,  before 
this  idea  took  concrete  slia[)e,  owing  to  the  fact  that,  as  in  Mexico, 
there  were  many  ])ersons  who  believed  that  the  value  of  silver  would 
again  become  stable,  though  not  perhaps  at  the  old  ratio  of  1  to  IG, 
or  that  an  international  agreement  would  be  reached.  The  interna- 
tional monetary  conference  which  met  at  Brussels  in  1892  terminated 
without  practical  results,  as  previous  conferences  had  done,  and  then 
it  was  that  the  Indian  government  resolved  to  introduce  the  monetary 
reform,  which  consisted  in  stabilizing  tlie  ratio  of  the  silver  coin  to 
gold  without,  for  the  moment,  putting  gold  into  circulation. 

In  accordance  ^\•ith  this  determination  a  decree  was  issued  on  June 
23,  1893,  closing  the  mints  to  coinage  on  private  account  and  laying 
down  that  in  future  rupees  would  be  sold  at  16d.  gold  each.  The 
Government  rightly  calculated  that  inasmuch  as,  other  things  being 
the  same,  the  value  of  a  coin  depends  on  the  quantity  of  it  in 
circulation,  the  value  of  the  rupee  would  have  to  increase  as  a  result 
of  its  growing  scarcity  consequent  upon  the  suspension  of  its  coinage. 
On  the  other  hand,  the  market's  highest  limit  would  have  to  be  16d., 
seeing  that  at  that  price  rupees  could  be  bought  from  the  government. 
The  rupee,  which  had  been  worth  l-iM.  in  1893,  first  underwent  a 
depreciation  on  account  of  the  large  quantities  which  speculators 
threw  upon  the  market  in  expectation  of  the  reform.  But  afterwards 
the  rupee  gradually  rose  until  in  1898  it  was  w^ortli  16d.  The  contrac- 
tion did  not  fail,  however,  to  cause  some  crises  which,  du  reste,  were 
not  more  acute  than  those  which  had  previously  been  occasioned  by 
the  decline  of  silver  with  its  concomitant  fluctuations.  Since  1898 
the  rupee  has  lieen  maintained,  save  for  slight  variations,  at  the  legal 
parity  of  16d.  The  slowness  of  the  rise  in  the  value  of  the  rupee  may 
be  ascribed  to  the  slow  expansion  of  public  wealth, the  years  189(')-1898 
having  been  years  of  famine  and  bad  crops,  as  well  as  to  the  fact  that 
in  those  years  gold  was  scoring  a  higher  purchasing  power  as  com- 
pared Avith  the  principal  articles  of  consumption,  as  proved  by  the 
tables  of  the  noted  economist  Sauerbeck. 

A  method  similar  to  that  of  India  was  adopted  by  Peru  to  estab- 
lish the  gold  standard  with  an  actual  circulation  of  that  metal.  The 
Government  of  that  Republic  having  become  convinced  of  the  neces- 
sity of  a  reform  issued  on  April  9,  1897,  a  decree  closing  the  mints 
to  the  free  coinage  of  silver.  In  regard  to  the  "  soles  "  that  w^ere 
circulating  abroad,  principally  in  Central  America,  it  was  decreed 
that  "  inasmuch  as  they  had  become  converted  into  a  commodity  by 
the  mere  fact  of  their  exportation  from  the  national  territory  they 
could  only  return  thereto  as  a  commodity."  In  the  following  article 
of  the  same  decree  it  was  ordered  that  the  "  soles,"  which  might  be 
imported,  should  be  melted  down  and  returned  to  their  owner  in  the 
form  of  bars.  The  growing  scarcity  of  silver  coins  has,  in  fact, 
caused  the  value  of  the  "  soles  "  to  rise  to  legal  parity,  attracting 


350  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

gold  in  fair  quantities,  so  that  at  present  gold  and  silver  circulate  at 
par  at  the  legal  ratio  of  10  "  soles  "  for  1  Peruvian  pound,  which  is 
equal  to  the  pound  sterling. 

The  present  situation  of  Mexico  possesses  considerable  similarity 
to  the  situation  in  Peru,  before  the  latter  nation  effected  its  monetary 
reform,  for  Peru  also  had  the  silver  standard,  and  a  large  quantity 
of  its  coins  were  in  circulation  abroad.  We  consider  Peru's  methods 
worthy  of  imitation  with  some  modifications,  especially  Avith  respect 
to  the  coins  circulating  abroad.  The  Government  of  Peru  confined 
itself  to  prohibiting  their  reimportation,  which,  in  our  case,  does 
not  seem  a  sufficiently  eflicacious  measure  for  the  future,  for  we 
deem  it  necesary  to  strike  a  new  coin  which  will  be  given  in  exchange 
for  that  at  present  circulating  in  the  Republic  and  which,  after  the 
consummation  of  the  reform,  will  alone  be  legal  tender. 

In  view  of  what  we  have  said  and  of  other  considerations  which  we 
will  offer  later  on,  we  would  recommend  the  following  transitional 
measures : 

1.  Upon  the  publication  of  the  decree  of  reform  the  mints  will  be 
immediately  closed  to  the  free  coinage  of  silver  and  the  reimportation 
of  Mexican  dollars  of  the  present  legal  issues  will  be  prohibited  under 
the  severest  penalties. 

2.  The  Government  will  proceed  to  coin  as  soon  as  possible  a  silver 
dollar  containing  the  same  quantity  of  pure  metal  as  the  present  dol- 
lar, of  a  new  design,  which  shall  be  as  perfect  as  possible,  and  said 
dollar  will  be  exchanged  at  par  within  fifteen  months  for  the  dollar  at 
present  circulating  in  the  Republic. 

3.  The  new  subsidiary  silver  coins  will  also  be  given  in  exchange 
for  the  present  ones  at  par  within  the  same  period  of  time,  but  the 
Government  may  extend  that  period  if  it  deems  fit. 

4.  In  order  to  consummate  the  coinage  of  new  money,  the  Govern- 
ment will  have  to  provide  itself  with  the  sum  of  18  million  dollars, 
either  by  means  of  a  public  loan,  or  by  taking  it  from  the  reserves,  or 
through  advancements  to  be  made  by  the  banks  in  return  for  special 
certificates,  which  they  may  compute  as  part  of  their  reserves. 

5.  In  view  of  the  fact  that  Mexico's  mints  would  not  be  equal  to  the 
work  of  new  coinage  within  the  stipulated  period,  recourse  will  be  had 
to  such  foreign  mints  as  the  Government  may  deem  fit.  To  that  end 
a  commission  of  two  persons  will  be  sent  to  each  of  those  mints  proj)- 
erly  to  supervise  the  work. 

6.  As  soon  as  the  Government  secures  the  necessary  dies  the  mints 
will  be  thrown  open  to  the  free  coinage  of  gold  at  the  ratio  of  1  to 
32.48.     The  gold  coins  will  be  unlimited  legal  tender. 

7.  During  the  fifteen  months  allowed  for  the  exchange  of  coins, 
the  coins  both  of  the  present  and  the  new  issues  will  be  legal  tender ; 
but  after  the  expiration  of  that  period  the  coins  of  the  new  issue  will 
alone  be  legal  tender,  with  the  excejition  of  the  subsidiary  coins,  for 
which  the  period  of  conversion  may  be  extended. 

8.  The  (lovernment  will  sell  to  any  applicant  the  uoav  silver  dollar 
at  the  rate  of  0.752  of  a  gram  of  ])ure  gold,  provided  that  its  intrinsic 
value  is  not  greater. 

9.  In  all  engagements  to  pay  that  may  be  contracted  in  the  future, 
it  will  be  stipulated  that  said  i>aymeiits  will  be  made  in  Mexican 
coin  according  to  the  law  in  force  and  mentioning  its  date.     But  if 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       351 

the  parties  insist  upon  fixini>'  the  quality  and  weight  of  the  coin,  the 
debtor  shall  he  entitled  to  pay  in  legal  money,  at  the  market  price 
on  th(>  day  when  the  debt  becomes  due,  a  (|uantitv  of  metal  corre- 
sj)()ndino-  to  the  amount  which  he  owes,  if  he  can  not  pay  in  the  stipu- 
lated coin. 

10.  In  the  case  of  engagements  to  pay.  contracted  prior  to  the 
j)ublication  of  the  decree  of  conversion  and  becoming  due  subsequently 
to  that  decree,  the  debtor  will  be  entitled,  in  case  a  rise  in  the  value  of 
silver  brings  about  the  replacement  of  a  considerable  quantity  of 
silver  coins  by  gold  coins,  to  effect  payment  in  the  latter,  in  Avhich 
case  article  1-153  of  the  civil  code  of  the  federal  district  will  be  without 
effect. 

11.  If  an  advance  in  the  value  of  silver  should  enhance  the  value  of 
the  silver  dollar  above  the  ratio  mentioned  in  the  foregoing  clauses, 
and  the  mints  should  be  unable  to  meet  the  demand  for  gold  coins 
Avith  the  necessary  promptitude,  the  government  may  invest  American 
gold  coins  with  a  legal  tender  character  until  they  can  be  replaced  by 
Mexican  gold  coins.  The  American  gold  coins  will,  in  such  an  event, 
be  received  at  the  rate  of  2  pesos  per  dollar.  If  such  an  advance  occur 
before  the  Government  has  provided  itself  with  the  necessary  dies,  the 
exportation  of  subsidiary  coins  will  be  prohibited. 

12.  Two  years  after  the  date  of  the  decree  the  coinage  and  imj^orta- 
tion  of  dollars  of  the  present  issue  will  be  permitted  in  the  capacity  of 
a  commodity. 

For  the  better  comprehension  of  the  ideas  that  have  guided  us  in 
presenting  the  foregoing  programme  of  conversion  we  beg  leave  to 
make  some  complementary  observations. 

Starting  from  the  principle  already  laid  down  that  the  appreciation 
and  stabilization  of  our  dollar  can  only  be  brought  about  by  restrict- 
ing its  circulation,  it  has  seemed  to  us  indispensable  that  the  closing 
of  the  mints  be  supplemented  by  the  strict  prohibition  to  reimport 
Mexican  dollars  of  the  present  legal  issues  in  order  to  prevent  the 
return  of  the  dollars  that  are  held  abroad,  principally  in  Asia,  causing 
the  depreciation  of  the  dollars  circulating  here. 

In  order  to  provide  a  new  monetary  circulation  we  have  estimated 
that  three  months  would  be  necessary  to  make  the  new  dies  and  a  year 
for  the  actual  work  of  coinage,  giving  a  total  of  fifteen  months.  By 
coining  10  million  dollars  per  month,  which  will  be  given  in  exchange 
immediately  for  dollars  of  the  present  issue,  we  think  that  a  loan  of 
$18,000,000  would  be  sufficient  for  the  Government's  purposes. 

According  to  our  tenth  proposition  persons  who  may  have  con- 
tracted engagements  to  pay,  prior  to  the  decree  of  conversion,  are 
entitled  to  pay  in  gold,  if  the  latter  metal  shall  have  replaced  silver 
by  reason  of  an  extraordinary  appreciation  thereof.  In  view^  of  the 
fact  that  our  projected  law-  in  general  favors  the  creditor,  it  seemed  to 
us  just  to  make  in  this  case  an  exception  in  favor  of  the  debtor. 

Our  eleventh  proposition  also  contemplates  the  contingency  of  an 
appreciation  of  silver  resulting  in  the  exodus  of  that  metal  and  its 
replacement  by  gold.  In  such  an  event  there  would  be  a  risk  of  a 
depletion  of  cash,  which,  we  think,  would  make  it  desirable  to  invest 
American  gold  coins  provisionally  with  a  legal  tender  character,  and 
if  the  new  subsidiary  coins,  which  on  account  of  their  lesser  value 
would  not  leave  the  country,  shall  not  as  yet  be  in  circulation,  we  think 


352  GOLD    STANDAKD    IN    INTERNATIONAL   TRADE. 

that  the  exportation  of  the  present  subsidiary  coins  should  be  pro- 
hibited in  order  that  there  may  not  be  a  scarcity  of  such  coins  for 
small  transactions. 

The  above  is  what  we  have  the  honor  of,  proposing  to  the  fifth  sub- 
committee that  it  may  reach  a  suitable  decision. 


Mexico,  October  7, 1903. 


R.  G.  Granados. 
E.  Hegevvisch. 


Annex  No  4. — Necessity  of  a  Reserve  Fund—Opinion  of  Delegate  Genabo 

Raigosa. 

Third  question. — What  measures  are  to  be  adopted  to  bring  about 
the  stability  of  international  exchange  on  the  hypothetical  basis  that 
the  values  of  the  new  coins  of  gold  and  silver  that  are  to  be  struck  are 
to  be  in  the  ratio  of  1  to  32  of  the  weight  of  pure  metal  that  each 
contains  ? 

This  question,  which  I  do  not  hesitate  to  consider  as  the  basic  ques- 
tion of  the  whole  monetary  problem,  has  given  rise  to  such  differences 
of  opinion  among  the  members  of  the  special  section  of  the  fifth  sub- 
committee— differences  which  it  has  been  impossible  to  overcome  by 
verbal  debates — that  it  has  become  necessary  to  state  them  in  writing, 
with  a  view  to  the  methodical  condensation  of  the  considerations  in- 
fluencing each  of  the  persons  maintaining  opposite  views,  and  with 
the  further  object  of  complying  with  the  suggestion  of  the  minister  of 
finance  that  each  member  of  the  monetary  commission  should  express 
his  ideas  in  this  momentous  question.  The  views,  therefore,  that  I 
shall  express  in  this  brief  essaj^  are  purely  personal,  the  product  of  my 
own  studies,  and  not  polemical  resources  to  win  adherents  or  corrobo- 
rative votes  that  might  give  authority  and  prestige  to  my  opinions. 

I.  In  order  to  get  rid  of  silver  monometallism  there  is  no  course 
but  to  adopt  the  gold  standard,  with  or  without  a  gold  circulation. 
In  the  case  of  the  latter  alternative,  which  is  the  one  adopted  by  the 
monetary  commission,  the  silver  coin  tends  to  divest  itself  of  all  rela- 
tionship with  the  metal  of  which  it  is  composed,  to  emancipate  itself 
from  the  fluctuations  of  the  price  of  that  metal  in  bars,  and  to  become 
dependent,  as  far  as  its  exchange  value  is  concerned,  on  gold  alone  as 
the  unit  whereby  all  values  are  measured  or  estimated. 

II.  The  adoption  of  the  gold  standard  without  a  gold  circulation 
is  a  transient  system,  a  preparation  for  the  gold  standard  with  gold 
in  circulation,  which  is  the  monetary  ideal  of  the  present  age^  That 
preparatory  system  is  indispensable  to  the  avoidance  of  the  crises  or 
upheavals  of  a  brusque  change  of  monetary  regime,  providing  for  the 
gradual  entrance  of  gold  into  circulation  and  for  an  ever  increasing 
degree  of  proximity  to  a  stable  and  permanent  parity  in  the  legal 
relationship  of  values. 

III.  In  conse(pience  the  system  adopted  by  the  monetary  commis- 
sion is  simply  a  ])rologiie  to  the  establishment  of  the  gold  standard 
with  gold  in  circulation. 

IV.  From  this  point  of  view  the  inquiry  as  to  the  measures  neces- 
sary to  bring  about  legal  parky,  and  when  once  attained  to  conserve 
it  permanently  between  the  new  silver  eoins  and  the  gold  unit,  reduces 
itself  to  thu  following  points:  (1)  What  is  the  most  efficacious  method 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       353 

to  elevate  artificially  the  gold  value  of  the  new  silver  coins  to  the 
legal  parity?  And  secondly,  what  is  the  most  efficacious  method  of 
assuring  the  permanent  fixity  of  international  exchange  when  the 
parity  shall  once  have  been  realized? 

y.  In  order  to  elevate  artificially  the  gold  value  of  the  new  silver 
coins  to  legal  parity  there  are  two  fundamental  methods  which  sup- 
plement one  another: 

{a)   Limitation  of  the  quantity  of  the  inferior  metal  coined. 

(b)  The  convertibility  of  the  new  coins  of  the  inferior  metal  into 
the  superior  metal  at  the  rate  fixed  by  law. 

A^I.  The  former  method  brings  intt)  play  the  law  of  monopoly  or 
the  enhancement  of  value  caused  by  scarcity.  The  closing  of  the 
mints  to  the  free  coinage  of  silver  thus  figures  a  condition  sine  qua 
non  of  the  monetary  reform.  The  commission  has  been  unanimous 
in  the  adoption  of  this  feature.  The  mints  will  turn  oat  the  new 
silver  coin  merely  in  the  amount  necessary  to  replace  the  old  coin. 
AMien  the  old  coins  shall  once  have  been  called  in  or  melted  the  mints 
will  only  coin  silver  dollars  in  exchange  for  gold.  If  gold  is  not 
offered  at  the  mints  in  quest  of  silver  dollars,  the  quantity  of  silver 
dollars  circulating  in  the  country  at  the  date  of  the  coming  into  opera- 
tion of  the  new  monetary  law  can  not  be  added  to.  The  stock  of  silver 
dollars  will  therefore  be  restricted  to  the  supply  thereof  in  the  coun- 
try at  the  time  when  the  exchange  of  the  old  coins  into  the  new  coins 
shall  have  been  completed.  If  commercial  or  other  necessities  cause 
the  exportation,  or  reduction  in  other  ways,  of  the  circulating  supply 
of  silver  dollars,  the  law  of  scarcity  or  limitation  of  supply  will  come 
into  play  and  will  manifest  itself  in  the  appreciation  of  the  remain- 
der. P^ven  ^vithout  exportation  or  the  withdraw^al  of  dollars  for 
hoarding  purposes  the  mere  expansion  of  business  and  the  increase  of 
the  population  will  produce  the  same  results  by  reason  of  an  increas- 
ing demand  in  the  face  of  a  supply  which  the  absence  of  additions  to 
the  stock  of  silver  dollars  causes  to  remain  stationary. 

VII.  But  will  the  normal  operation  of  the  law^  of  scarcity,  will  the 
closing  of  the  mints  to  the  free  coinage  of  silver  suffice  to  bring  about 
the  legal  parity  of  the  new  silver  coins  with  gold  and  the  stabiliza- 
tion of  international  exchange  Avithout  entailing  difficulties  and 
periods  of  monetary  crisis  which,  owing  to  their  intensity  and  dura- 
tion, will  cause  evils  that  will  perhaps  outweigh  the  benefits  that 
may  legitimately  be  expected  from  the  monetary  reform?  This  is 
where  the  difference  of  opinion  begins.  Mine  is  strongly  negative; 
the  opinion  of  my  honorable  colleagues  on  the  subcommittee  is 
affirmative.  From  their  point  of  view  there  is  no  necessity  of  a 
reserve  fund  which,  cooperating  with  the  law  of  scarcity,  shall  abridge 
the  period  of  transition,  mitigate  or  obviate  crises,  regulate  the  cir- 
culation, inspire  confidence  and  certainty  in  the  efficacy  of  the  reform 
and  afford  in  one  form  or  another  a  possible  guarantee  as  to  the 
solidity  of  the  new  monetary  system.  They  consider  that  the  reserve 
fund  can  never  be  necessary,  and  that  at  the  most  it  may  be  desirable 
after,  but  not  before,  the  practical  attainment  of  legal  parity.  "Let 
the  monetary  law^  be  issued,"  say  they,  '•  let  the  mints  be  closed  to  the 
free  coinage  of  silver  and  await  the  results.  If,  after  the  lapse  of  a 
reasonable  period,  the  legal  parity  and  the  stabilization  of  exchange 
are  not  attained,  it  will  then  be  time  to  think  of  a  reserve  fund." 

S.  Doc.  128, 58-3 23 


354  GOLD    STANDAKD    rN   INTERN A.TIONAL   TRADE. 

VIII.  Experimentally  this  opinion  seems  to  have  strong  support 
in  the  result  of  the  methods  adopted  by  the  Indian  government  to 
elevate  artificially  the  gold  value  of  the  silver  rupee  to  16d  (legal 
parity)  without  the  aid  of  a  reserA^e  fund,  as  well  as  in  the  official 
opinion  expressed  by  that  government  in  1898,  to  the  effect  that  the 
rise  in  the  value  of  the  rupee  subsequently  to  1894-95  "  was  due  to 
the  contraction  of  the  currency,  and  that  the  same  cause  would  con- 
tinue to  act  in  the  same  direction  so  long  as  the  mints  were  closed  to 
silver."  Thus  it  would  seem  that  it  might  be  inferred  from  that 
example  and  that  opinion  that  the  mere  effect  of  the  law  of  scarcity 
or  currency  contraction  would  have  been  sufficient  to  raise  the  gold 
value  of  the  silver  rupee  to  legal  parity  without  the  need  of  a  reserve 
fund. 

IX.  Nevertheless,  the  committee  appointed  by  the  British  Govern- 
ment under  the  chairmanship  of  Sir  ITenry  Fowler  to  study  the  cur- 
rency questions  of  India  affirms  in  its  report  of  July  1,  1899,  that  "  it 
has  not  been  proved  that  the  rise  in  the  value  of  the  rupee  since 
1894-95  is  due  solely  to  relative  contraction  of  the  Indian  currency; 
and  it  may  be  that  it  is  not  due  mainly  to  this  cause.  It  is  not  cer- 
tain that  there  has  been  any  contraction  of  the  Indian  currency  which 
has  materially  affected  the  exchange,  though  it  may  not  unreasonably 
be  inferred  that  there  must  have  been  some  contraction  and  that  such 
contraction  has  had  some  influence  on  the  exchange  value  of  the  rupee. 
On  the  other  hand,  there  are  causes  other  than  contraction  of  the  cur- 
rency which  affect  the  value  of  the  rupee  and  the  exchange  with 
London.  Large  borrowing  in  London  on  account  of  India,  reduc- 
tion of  the  drawings  of  the  secretary  of  state,  an  increase  in  the 
exports  from  India  unaccompanied  by  an  equivalent  increase  in 
imports,  as  well  as  a  general  rise  in  gold  prices,  would  all  affect  the 
rate  of  exchange  with  India,  though  it  is  quite  impossible  to  estimate 
the  relative  importance  of  these  factors  among  themselves,  or  the 
amount  of  their  influence  on  exchange,  as  compared  with  the  effect 
of  a  contraction  of  the  currency,  or  to  state  the  precise  degree  of 
influence  which  any  or  all  of  them  have  had  on  any  particular  altera- 
tion in  the  exchange.  Nor,  on  the  other  hand,  is  it  certain  that  the 
unusually  low  rate  of  exchange  that  prevailed  in  1894-95  was  due 
solely  to  a  relative  redundancy  of  the  Indian  currency.  The  closing 
of  the  Indian  mints  necessarily  brought  into  plaj^  many  disturbing 
influences  which  may  have  affected  1894-95.  Since  the  mints  were 
closed,  there  has  also  been  large  borrowing  on  Indian  account,  and 
there  have  been  in  some  years  large  reductions  below  the  normal 
amount  in  the  public  remittances  from  India,  Avhile  fluctuations  have 
been  experienced  in  the  foreign  trade  of  India,  daie  to  famine  and 
plague,  as  well  as  to  other  causes. 

"All  these  causes  must  at  different  times  have  affected  the  exchange 
either  favorably  or  unfavorably.  Another  influence  which  must  have 
had  a  favorable  effect  on  the  Indian  exchange  is  the  reduction  in  the 
imports  of  silver  due  to  the  closing  of  the  mints.  In  face  of  the  facts 
we  have  just  stated,  we  are  unable  to  accept,  without  qualification,  the 
opinion  that  the  rise  in  the  value  of  the  rupee  since  1894-95  has  been 
due,  wholly  or  mainly  to  a  relative  contraction  of  the  Indian  currency, 
and  though  we  accept  in  principle  the  proposition  that  a  reduction  in 
the  number  of  rupees  tends  to  increase  the  value  of  the  rupee,  we  are 
not  prepared  to  admit  that  such  effect  must  necessarily  be  direct  and 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  355 

immediate;  m)r  are  Ave  satisfied  that  such  reduction,  carried  out  on  a 
large  scale  and  within  a  limited  period,  miglit  not  aggravate,  if  it  did 
not  produce,  a  ])eriod  of  stringency  in  the  Indian  money  market." 

X.  India's  example  does  not,  therefore,  prove,  as  at  first  sight  it 
might  seem  to,  that  the  closing  of  the  mints  and  the  contraction  of 
the  currency,  due  to  the  indefinite  withholding  of  new  supplies  of 
silver  dollars,  will  suffice  to  raise  the  new"  coin  to  a  legal  parity  with 
gold  and  to  stabilize  exchange.  On  the  contrary  in  regard  to  India 
itself,  in  addition  to  the  other  causes  pointed  out  by  the  Fowler  com- 
mittee as-  factors  in  the  rise  of  the  value  of  the  rupee,  Ave  liaA^e  to  take 
into  account  the  considerable  issue  of  paper  money  made  by  the  In- 
dian GoA'ernment,  after  liaA^ing  depriA^ed  the  banks  of  the  right  to 
issue  notes,  the  system  of  drafts  on  India  established  by  the  British 
GoA'ernment,  on  the  basis  of  a  gold  fund  deposited  in  London  and  the 
constant  increase  in  the  output  of  gold  from  the  mines  of  India,  for 
all  these  causes  which,  in  the  aggregate,  tended  to  curtail  the  expor- 
tation of  gold  or  to  increase  the  country's  stock  of  gold,  also  tended  to 
augment  the  gold  value  of  the  rupee.  Consequently  India's  example 
does  not  seem  conclusiA^e  in  faA'or  of  A^enturing  the  entire  success  of 
monetary  reform  on  nothing  but  the  closing  of  the  mints  to  the  free 
coinage  of  sih'er,  especially  since  that  same  example  has,  on  the  other 
hand,  demonstrated  the  dangers  and  inconvenience  Avhich  that  country 
has  passed  through  during  the  long  transitional  period  of  fiA^e  years 
that  the  rupee  required  to  reach  the  desired  parity,  as  stated  in  an 
official  document  of  the  same  Government  quoted  by  Fowler  as  fol- 
lows: "The  goA^ernment  of  India  is  anxious  '  both  in  the  interests  of 
the  State  and  of  the  mercantile  community,'  to  terminate  the  period  of 
transition  Avithout  further  delay — in  the  interests  of  the  State,  because 
it  would  be  cheaper  in  the  end  to  acquire  a  reserA'e  of  gold  by  borroAv- 
ing,  and  thus  keep  the  exchange  value  of  the  rupee  at  a  steady  leA^el 
of  16  pence  than  to  bear  for  years  the  burden  of  expenditure  entailed 
by  the  lower  leA'el  of  the  rupee;  in  the  interests  of  the  commercial 
community  because  it  Avas  not  desirable  that  their  legitimate  business 
should  be  hampered  and  embarrassed  by  the  uncertainty  of  exchange, 
Avhile  the  Avant  of  confidence  in  the  stability  of  the  rupee  discouraged 
the  iuA'estment  of  capital  in  India  and  aA^ailable  capital  Avas  remitted 
to  England  AvhencA'er  the  exchange  A^alue  of  the  rupee  rose  to  a  hieh 
level.-' 

XI.  It  is  not  easy  in  official  language  to  lament  more  eloquently 
the  error  committed  in  trusting  to  nothing  but  the  influence  of  the 
closing  of  the  mints  and  the  scarcity  or  contraction  of  the  currency  to 
bring  about  an  artificial  rise  of  the  sih^er  coins  to  the  legal  parity  nor 
more  clearly  to  state  the  drawbacks  and  the  inconA'eniences  incidental 
to  the  lack  of  an  instrumentality  for  the  regidation  of  the  currency, 
Avhich  Avould  have  assured  confidence  in  the  solidity  of  the  ncAv  mone- 
tary system  and  haAc  encouraged  the  iuAestment  of  foreign  capital. 
'•  The  creation  of  a  reserA'e  fund,"  said  Professor  Conant  in  his  report 
to  the  Secretary  of  AVar  of  the  American  GoA-ernment  on  XoA-ember  25, 
1901,  "  is  the  most  essential  of  the  provisions  to  maintain  confidence  in 
the  neAv  sih^er  coins.  WhatcA^er  may  be  the  burden  imposed  upon  the 
Government  for  interest  payments  in  order  to  form  the  reserA^e  fund 
it  would  be  a  small  price  to  pay  for  the  security  afforded  to  conimerce 
and  the  invitation  extended  by  a  sound  monetary  system  to  the  iuA^est- 
ment  of  capital  Avith  the  resulting  increase  in  the  taxable  property  and 


356       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

the  revenues  of  the  islands."  And  in  another  part  of  the  same  report 
he  says :  "  The  limitation  of  the  quantity  of  silver  coined  and  the 
interchangeability  of  the  cheaper  metal  with  the  standard  metal  at  the 
ratio  fixed  by  law  are  the  influences  that  have  operated  in  the  United 
States  to  keep  at  par  with  gold  a  mass  of  silver  currency  of  which  the 
bullion  value  is  far  below  its  face  value." 

XII.  The  government  of  India  itself  in  its  dispatch  of  March  3, 
1898,  when  proposing  the  withdrawal  of  24  million  rupees  in  order  to 
steady  the  gold  value  of  the  rupee  at  the  legal  parity,  dwelt  on  the 
necessity  of  melting  down  that  sum  in  bar  silver,  but  "  having  first 
provided  a  reserve  of  gold  both  for  the  practical  purpose  of  taking  the 
place  of  the  silver  and  in  order  to  establish  confidenoe  in  the  issue  of 
our  measures,  the  first  step  was  to  take  powers  to  borrow  sums  not 
exceeding  in  the  whole  20  million  pounds  sterling  and  at  once  to  remit 
5  million  pounds  sterling  in  sovereigns  to  India  as  a  first  installment. 
If  exchange  remained  at  or  above  16d.  there  would  be  no  further  step. 
But  if,  and  so  long  as,  the  exchange  fell  below  16d.  the  government  of 
India  would  take  rupees  from  its  balances,  melt  them  down,  sell  the 
bullion  for  other  rupees  in  India,  pny  these  other  rupees  int<)  its  bal- 
ances, and  finally  make  good  thereto  the  balance  of  loss  with  part  of 
the  borrowed  gold."  These  energetic  measures  will  give  an  idea  of  the 
terrible  situation  through  which  the  country  had  passed  and  from 
which  it  had  not  emerged  in  spite  of  the  fact  that  since  January  of 
that  year  the  rupee  had  at  last  attained  the  parity  so  tenaciously 
sought  for  five  years,  and  though  the  Indian  currency  committee  did 
not  indorse  the  proposal  of  the  Indian  government,  that  fact  was 
principally  because  the  large  and  unlooked-for  receipts  of  gold 
during  the  remainder  of  that  year  and  in  1899  led  the  committee  to 
prefer  the  definite  establishment  of  the  gold  standard  with  a  gold  cir- 
culation. This  project  was  at  once  approved  by  the  British  Govern- 
ment; the  sovereign  became  unlimited  legal  tender  in  India  and  the 
mints  were  thrown  open  to  the  free  coinage  of  gold. 

XIII.  From  all  these  precedents  I  infer  that  the  closing  of  the 
mints  to  the  free  coinage  of  silver  and  the  influence  of  scarcity  value 
or  currency  contraction  which  that  closing  must  occasion  can  not,  if 
unaccompanied  and  uncombined  Avith  the  regulating  action  of  a 
reserve  fund  in  one  form  or  another,  show  a  satisfactory  indorsement 
in  the  methods  recently  adopted  by  other  countries  under  conditions 
that  may  have  been  similar  to  our  conditions  at  present,  and  there- 
fore, in  principle  and  as  a  general  proposition,  a  reserve  fund  is  an 
essential  requisite  in  the  adoption  of  monetary  reform. 

XIV.  Wliat  would  be  the  object  of  the  reserve  fund  and  what  its 
chief  functions? 

My  opinion  is  that  the  reserve  fund,  in  addition  to  serving  as  a 
guaranty  for  the  objects  of  the  law  and  consolidating  public  confi- 
dence in  its  results,  aims  at  imparting  to  the  interior  circulation  the 
elasticity  which  it  needs  and  to  international  exchange  a  gradual  and 
progressive  degree  of  stability  to  the  end  that,  during  the  transition 
period,  the  country  may  not  suffer  violent  monetary  contractions  and 
that  the  market  may  not  be  exposed  to  sudden  ebbs  and  flows  owing  to 
the  nc(;essity  of  securing  gold  to  settle  its  indebtedness  to  foreign 
countries.  To  moderate,  to  regulate,  to  abridge  the  period  of  transi- 
tion during  which  the  new  coins  will  be  attaining  their  legal  parity, 
on  the  one  hand,  and,  on  the  other  hand,  to  facilitate  the  remittance 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  35'7 

of  funds  abroad  in  the  mone}^  that  is  the  standard  of  the  commercial 
world,  on  better  terms  than  AYonld  be  offered  by  private  interests,  are, 
in  brief,  what  I  consider  the  chief  functions  of  the  reserve  fund. 

XV.  It  is  unnecessary  to  say  that  the  functions  mentioned  must 
fundamentally  have  for  their  aim  the  nuiintenance  of  a  most  impor- 
tant condition  for  the  country's  progress,  viz.,  its  ability  to  attract 
foreign  ca})ital  through  the  security  offered  that  further  investments 
effected  can  at  any  time  be  realized  in  the  world's  monetary  standard. 
If  the  studies  of  the  first  subcommittee  prove  anything,  it  is  that  in 
Mexico,  as  in  every  new  countrj^  with  large  resources  awaiting  develop- 
ments, foreign  capital  enters,  and  will  continue  to  enter,  chiefly  in  the 
form  of  machinery  for  industrial  enterprises,  mining,  and  agriculture, 
in  the  form  of  railway  equipment,  or  in  specie  foi-  material  improve- 
nuMits  and  for  j^urchases  of  the  public  debt,  etc.,  seeing  that  the  sums 
of  money  which  corporations  collect  among  their  shareholders  or 
which  are  directly  invested  by  private  persons  are  devoted  to  the 
acquisition  of  those  instrumentalities  of  labor  necessary  for  the  con- 
duct of  their  undertakings  or  to  the  purchase  of  securities  by  means 
of  said  capital.  As  long  as  these  investments  continue  active  there 
will  be  an  excess  of  imports  for  which  it  will  not  be  necessarj^  to  pay 
by  means  of  a  compensating  outflow  of  gold  or  commodities,  save  to 
the  extent  of  a  snuill  proportion  of  the  country's  production  due  to 
importations  of  this  nature;  that  is  to  say,  in  the  form  of  interest 
or  profits,  which  will  always  be  much  less  than  the  sums  brought  in, 
so  that  the  country  is  constantly  receiving  a  great  deal  more  than  it: 
pa^'s  out.  The  only  danger,  or  the  greatest  danger,  of  this  situation 
lies  in  the  possibility  that  the  current  of  investment  may  be  suspended 
or  arrested  and  that  the  trade  balance  may  suddenly  have  to  be 
settled  in  gold,  but  this  clanger  can  only  arise  as  long  as  the  monetary 
system  continues  subject  to  unforeseen  fluctuations  and  possibilities 
of  loss  in  the  transformation  into  gold  of  the  coin  in  which  returns 
or  interest  are  paid ;  that  is  to  say,  until  such  time  as  the  reserve  fund 
shall  begin  to  impart  the  promised  stability  to  exchange  and  a  pro- 
gressive and  steady  approximation  to  the  new  legal  parity. 

XVI.  It  is  not  desirable  and  no  one  would  suggest  that  the  reserve 
fund  should  be  at  once  used  to  exchange  the  new  silver  coins  into 
gold  at  the  legal  parity,  for  such  a  use  of  the  reserve  would  simply 
amount  to  the  suppression  of  the  transition  period  and  the  implanta- 
tion of  the  gold  standard  with  a  gold  circulation.  But  the  tendency 
and  immediate  object  of  the  creation  of  the  fund  would  be  to  enable 
us  to  advance  with  firm  and  ever  accelerated  steps  to  the  earliest 
possible  attainment  of  that  parity;  and  therfore  all  that  may  con- 
duce, directly  or  indirectly,  to  diminish  the  fluctuations  of  exchange 
and  the  pressure  on  the  stock  of  metallic  money;  all  that  may  con- 
tribute to  render  the  internal  currency  more  flexible  and  to  secure 
a  supply  of  the  precious  metals;  all  that  may  tend  to  defeat  surprises 
or  speculative  combines  inimical  to  the  normal  development  of  the 
new  monetary  system  shoidd  enter  into  the  ])rogrammc  of  the  reserve 
fund. 

XVII.  There  is  no  doubt,  as  has  been  pointed  out  by  noted  con- 
temporaneous financiers,  that  a  great  bank  or  combination  of  banks, 
acting  under  suitable  monetary  arangements,  would  be  able  to  manage 
such  a  reserve  fund  much  more  effectively  and  much  more  in  harmony 
with  the  commercial  necessities  of  the  country  concerned  than  any 


358  ,      GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

official  institution  however  well  administered.  "  If  the  country's 
gokl  reserves,"  says  Professor  Andrew,  of  Harvard  University,  "  were 
to  be  concentrated  in  a  great  national  bank,  as  they  are  in  Germanj^ 
France,  and  England,  the  lluctuations  of  exchange  and  the  el)b  and 
flow  of  specie  might  be  more  easily  regulated.  In  abnormal  times 
such  an  institution  would  serve  to  give  stability'  to  the  value  of  silver 
money  by  means  of  borrowings  on  the  London  money  market  or  by 
the  sale  of  letters  of  exchange  on  its  agents  in  other  countries  at  lower 
prices  than  those  which  are  simply  determined  by  considerations  of 
private  gain.  It  might  also  put  a  brake  on  the  tendencies  that  make 
for  unfavorable  exchange  conditions  by  raising  the  rate  of  discount, 
or  might  limit  the  exodus  of  gold,  like  the  Bank  of  France,  by  charg- 
ing a  premium  on  gold  bullion  or  coin  destined  for  shipment  al>road." 
The  conditions  surrounding  the  legal  status  of  our  banks  in  Mexico 
render  im])racticable  the  idea  of  Professor  Andrew  save  through  a 
radical  reform  in  the  organization  of  those  institutions.  Their  life 
is  purely  individual,  aiming  only  at  the  private  gain  of  their  share- 
holders and  the  attainment  of  the  highest  dividends  possible,  and 
they  are  under  no  direct  obligation  to  safeguard  the  public  interests. 
The  banks  of  Mexico  are  private  institutions,  operating  independently 
and  even  antagonistically,  actuated  by  the  spirit  of  competition, 
and  without  any  thought  of  the  claims  of  solidarity.  The}^  do  not 
constitute  an  organic  entity  capable  of  combined  action  for  any  pur- 
130se,  even  for  common  defense.  Each  seeks  its  own  safety,  its  own 
aggrandizement,  by  means  of  its  own  resources,  without  concerning 
itself  with  the  growth  and  prosperity  of  the  others.  Under  such  cir- 
cumstances a  satisfactory  combination  of  the  banks  for  the  purpose 
of  taking  charge  of  the  delicate  duty  of  administering  the  reserve 
fund  is  for  the  present  out  of  the  question.  Nor  woidd  it  be  wise 
to  confide  functions  so  momentous  to  a  single  bank.  So  the  adminis- 
tration of  the  reserve  fund  must,  in  my  opinion,  be  vested  in  an  official 
institution  until  such  time  as  the  desideratum  of  banking  cooperation 
shall  be  attained  by  means  of  a  new  form  of  organization. 

XVIII.  Thus  the  reserve  fund,  administered  by  an  official  insti- 
tution, would  consist  of  a  deposit  in  gold  situated  abroad  and  an- 
other deposit,  originally  in  silver,  situated  within  the  country,  and 
its  modus  operandi,  or  powers,  would  substantially  be  as  follows: 

1.  To  sell  and  buy  drafts  payable  in  gold  abroad. 
2s  To  sell  drafts  pa^^able  in  silver  in  Mexico. 

3.  To  issue  in  Mexico  temporary  certificates  of  indebtedness,  con- 
stituting a  charge  upon  the  fund,  payable  in  silver  or  gold  at  short 
periods  from  the  date  of  issue,  either  at  a  moderate  rate  of  interest  or 
without  interest. 

4.  To  receive  temporarily  surplus  funds  of  the  treasury. 

5.  To  buy  gold  coins  or  gold  bullion  at  prices  not  exceeding  the 
cost  of  their  importation  from  abroad. 

XIX.  The  purchase  and  sale  of  drafts  payable  in  gold  is  one  of 
the  most  efficacious  and  useful  methods  to  assure  the  solidity  of  the 
monetary  system.  Through  that  i)()\ver  the  bank  of  Java  is  able  to 
maintain  the  silver  coinage  at  the  old  ratio  of  15 J  to  1.  "  The  bank," 
says  I*rofessor  Conant,  "  never  carried  more  than  a  trifling  amount 
of  gold,  but  the  sale  of  gold  bills  on  Holland  at  the  usual  rate  of 
exchange  has  for  many  years  maintained  the  parity  of  the  coins  with 
the  gold  btandard  of  the  Netherlands." 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       359 

XX.  The  other  methods  or  i)owers  speak  for  themselves,  as  they 
are  the  same  as  those  used  by  the  Treasury  of  the  United  States  to 
maintain  parity  between  the  varied  forms  of  its  currency,  and  they 
have  also  been  incorporated  into  the  new  currency  law  of  the  Philip- 
pine islands  promuliJfated  on  March  2  of  the  present  year  and  of  Avhich 
sections  G  and  8  are  as  follows: 

"  Sec.  t>.  The  government  of  the  Philippine  Islands  may  adopt  such 
measures  as  it  may  deem  proper  to  maintain  the  value  of  the  silver 
Philii)i)ine  peso  at  the  rate  of  oiie  gold  peso,  and  in  order  to  main- 
tain such  parity  between  said  silver  Philippine  pesos  and  the  gold 
pesos  herein  provided  for,  and  for  no  other  purpose,  may  issue 
temporary  certificates  of  indebtedness  bearing  not  more  than  four 
per  cent  interest,  paj'able  at  periods  of  three  months  or  more  but 
not  later  than  one  year  from  the  date  of  issue,  which  shall  be  in  the 
denominations  of  twenty-five  dollars  or  fifty  pesos  or  some  multiple 
of  such  sum,  and  shall  be  redeemable  in  gold  coin  of  the  United  States 
or  in  lawful  money  of  said  islands,  according  to  the  terms  of  issue  pre- 
scribed by  the  government  of  said  islands,  l)ut  the  amount  of  such  cer- 
tificates outstanding  at  anj^  one  time  shall  not  exceed  ten  million  dol- 
lars or  twenty  million  pesos:  Provided^  That  said  certificates  shall  be 
exempt  from  the  payment  of  taxes  to  the  government  of  the  Philip- 
pine Islands  or  to  any  local  authority  or  to  the  Government  of  the 
United  States:  And  provided.  That  all  the  proceeds  of  said  certifi- 
cates shall  be  used  exclusively  for  the  maintenance  of  said  parity,  as 
herein  provided,  and  for  no  other  purpose,  except  that  a  sum  not 
exceeding  three  million  dollars  at  any  one  time  may  be  used  as  a  con- 
tinuing a  credit  for  the  purchase  of  silver  bullion  in  execution  of  the 
provisions  of  this  act.'' 

"  Sec.  8.  That  the  treasurer  of  the  Philippine  Islands  is  hereby  au- 
thorized, in  his  discretion,  to  receive  deposits  of  the  ncAV  silver  coins 
at  the  treasury  of  the  government  of  said  islands  or  any  of  its 
branches  in  sums  of  not  less  than  twenty  pesos  and  to  issue  silver  cer- 
tificates therefor  in  denominations  of  not  less  than  two  nor  more  than 
ten  pesos,  and  coin  so  deposited  shall  be  retained  in  the  treasury  and 
held  for  the  payment  of  such  certificates  on  demand  and  used  for  no 
other  purpose.  Such  certificates  shall  be  receivable  for  customs  taxes 
and  for  all  public  dues  in  the  Philippine  Islands,  and  when  so 
received  mav  be  reissued,  and  wdien  held  by  any  banking  association 
in  said  islands  maj^  be  counted  as  part  of  its  lawful  service." 

XXI.  The  portion  of  the  reserve  fund  in  gold,  deposited  abroad, 
would,  through  the  sale  of  drafts  against  it,  serve  to  prevent  conges- 
tion in  the  periodical  demand  and  supply  of  drafts  which  at  present 
enables  private  bankers  to  speculate  in  the  rise  or  decline  of  the 
exchange  rates  in  anticipation  of  requirements.  The  studies  of  the 
third  subcommittee  show  that  the  drafts  of  the  majority  of  exporters 
become  plethoric  in  the  second  half  of  each  fiscal  year  and  grow"  scarce 
again  in  the  first  half;  whereas  the  remittances  of  funds  for  the  pay- 
ment of  the  coupons  of  the  public  debt  are  characterized  by  a  regu- 
larity Avith  which  all  are  familiar.  Thus  it  is  noticed  in  the  market 
that,  fhn-ing  certain  months  of  the  year,  the  purchase  price  of  com- 
mercial drafts  is  several  points  below  actual  parity,  while  in  other 
months  it  is  above  said  parity,  occasioning  and  stimulating  the  expor- 
tation of  coin.  A  careful  and  far-sighted  administration  of  the 
reserve  fund  will  correct  these  irregularities  with  advantage  to  the 


300       GOLD  STANDAED  IN  INTERNATIONAL  TRADE. 

community;  for  as  its  operations  will  not  be  actuated  by  profit  it 
will  aim  at  distributing  the  demand  for  the  transfer  of  values  on  an 
economical  basis  and  preventing  the  periodicity  of  congestion  in  the 
supply  or  the  demand  in  future. 

XXII.  As  will  have  been  observed  in  the  course  of  this  succinct 
exposition,  which  the  very  brief  time  allowed  me,  in  relation  to  the 
importance  of  the  question,  has  not  permitted  me  to  carry  into  detail 
or  even  to  complete,  the  functions  of  the  reserve  fund  only  apply  to 
the  period  of  transition  or  to  the  initial  period  of  the  monetarj^ 
reform,  the  period  during  which  the  new  coin  will  gradually  be 
approximating  legal  parity.  When  that  parity  shall  have  been  once 
attained,  the  importance  of  the  fund  will  cease  to  exist,  for  then  the 
gold  standard  with  gold  in  circulation  will  have  been  ushered  in  and 
the  system  will  operate  automatically  and  with  entire  stability. 

Such  are  my  opinions  and  I  respectfully  submit  them  to  my  honor- 
able colleagues  on  the  fifth  subcommittee. 

G.  Raigosa. 

Mexico,  November  5,  1903. 


Annex  No.  5. — Report  of  Messrs.  Josk  de  Landeeo  y  Cos  and  Carlos 

Sellebier. 

Fourth  question. — Is  it  advisable  to  counsel  the  adoption  of  special 
measures  such  as  the  abolition  or  diminution  of  taxes  and  the  like,  that 
will  save  not  only  the  silver-mining  industry  but  export  industries  in 
general  from  the  losses  that  might  accrue  to  them  from  a  change  of 
monetary  system  in  the  Republic? 

In  compliance  with  the  task  assigned  to  us  by  the  fifth  subcom- 
mittee we  hereby  report  as  to  the  points  submitted  to  us : 

The  mining  industry  and  export  industries  will  suffer  a  loss  equal  to 
the  difference  between  the  rate  of  foreign  exchange  in  force  before  the 
projected  monetary  reform  becomes  operative  and  the  rate  to  which 
exchange  will  fall  as  a  consequence  of  that  reform,  which  will  be  in 
the  neighborhood  of  200  per  cent  on  New  York,  accepting  the  hypo- 
thetical basis  of  1  to  32  as  the  relation  between  the  new  gold  and  silver 
coins.  Supposing  that  the  present  rate  of  exchange,  219  per  cent  on 
New  York,  were  to  prevail  just  prior  to  the  monetary  reform,  the  loss 
would  be  19  in  219  or  8.68  per  cent  minus  one-fourth  part  in  the  case 
of  mines,  owing  to  the  consumption  of  foreign  and  native  articles 
therein,  according  to  the  calculations  of  the  seconcl,  subcommittee, 
leaving  0.51  per  cent.  This  percentage  would  be  liable  to  increase  or 
diminution  according  to  the  subsequent  decline  or  rise  of  the  price  of 
silver  in  foreign  markets. 

In  order  to  afford  some  relief  to  mine  owners  and  the  growers  of 
exportable  agricultural  products  for  this  loss,  we  beg  leave  to  suggest 
that  the  fifth  subcommittee,  in  submitting  to  the  finance  department 
the  project  of  monetary  reform,  should  entreat  that  department  to 
ask  the  Federal  Congress  to  ap])rove  the  suppressions  and  reductions 
of  taxation  set  forth  in  the  accompanying  meuioranduin. 

As  the  fifth  subcommittee  well  knows,  one  of  the  undersigjud  is  not 
in  favor  of  niouetarv  reform;  but  being  a  member  of  the  fifth  sub- 
committee he  considered  himself  in  duty  bound,  Avheji  discussing  the 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       361 

bases  of  said  reform,  to  express  his  opinion  with  sincerity  and  frank- 
ness in  regard  to  each  of  those  bases. 

We  renew  to  you  the  assurances  of  our  courteous  consideration. 

Jose  de  Landero  y  Cos. 
Carlos  Sellerier. 
Mexico,  October  26, 1903. 


MEMORANDUM  OF  THE  SUPPRESSIONS  ANO  REDUCTIONS  OF  TAXATION  SUGGESTED  ON 
REHALF  OF  THE  WINING  AND  EXPORT  INDUSTRIES  TO  SYNCHRONIZE  WITH  THE 
REALIZATION  OF  THE  PROJECT  OF   MONETARY  REFORM. 

Reduction  of  the  annual  tax  on  mines  of  silver,  gold,  and  platinum, 
established  by  article  4  of  the  law  of  June  6,  1892,  from  $10  to  $5  per 
claim  (pertenencia). 

Suppression  of  the  3  per  cent  stamp  tax  on  the  value  of  silver  and 
gold,  established  bv  the  budget  law  and  by  Section  I,  article  1,  of  the 
decree  of  March  27,  1897. 

Reduction  from  2  to  1  per  cent  of  the  coinagetax  on  the  value  of 
silver,  established  by  the  budget  law  and  by  Section  II,  article  1,  of 
the  decree  of  March  27,  1897. 

Reduction  from  2  per  cent  to  one-quarter  per  cent  of  the  coinage 
tax  on  the  value  of  gold,  established  by  the  budget  law  and  by  Section 
II,  article  1,  of  the  decree  of  March  2t,  1897. 

Reduction  from  $1.25,  $2,  $2.50,  and  $3  per  kilogram  to  $1  per  kilo- 
gram of  silver  separated,  of  the  dues  on  the  separation  of  gold  fixed 
by  the  tariff  of  March,  1897,  attached  to  the  rules  of  practice  of  the 
decree  of  the  same  date. 

Exemption  for  ten  years  from  all  Federal,  State,  and  municipal  tax- 
ation, with  the  exception  of  the  stamp  tax,  for  the  owners  of  mines 
producing  mineral  substances  not  hitherto  exploited  in  the  Republic 
and  of  which  the  minimum  output  shall  be  1,000  tons  of  ore  per 
annum. 

Exemption  from  import  duties  on  the  following  articles  largely 
used  in  mines  and  metallurgical  works  and  of  which  some  already 
enjoy  such  exemption  under  the  existing  custom-house  tariff: 

Sulphuric  acid;  quicksilver;  sulphur  in  the  rough,  smelted,  or  sub- 
limated; hard  coal:  alkaline  cyanides;  coke;  hyposulphite  of  soda; 
soft  coal;  machinery  and  apparatuses  for  mines  and  metallurgical 
works;  nitrate  of  potash  or  soda;  sulphate  of  copper;  zinc  in  pigs, 
filings,  grains,  or  in  the  filiform  state. 

Removal  of  export  duties  on  the  agricultural  products  at  present 
subject  to  those  duties. 


Annex  No.  G. — Observations  of  Lie.  .Joaquin  D.  Casasus  in  Regard  to  the 
Opinion  of  Lie.  Genaro  Raigosa. 

Mexico,  November  12,  iOOS. 
To  Sr.  Lie.  Don.  Pablo  Maceuo, 

Chairman  of  the  Fifth  Subcommittee,  City. 
My  Dear  Friend  :  It  has  caused  me  the  deepest  regret  not  to  be  able 
to  share  the  opinions  which  you  have  been  maintaining  in  the  deliber- 
ations of  the  fifth  subconnnittee.  and  I  have  formed  the  resolve  not  to 


362  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

attend  any  of  the  forthcomiiig  sessions  that  may  be  held  for  the  pur- 
pose of  discussing  the  report  presented  by  our  colleague  and  friend, 
Sr.  Lie.  Genaro  Eaigosa. 

The  regret  which  I  experience  at  not  being  able  to  share  your 
opinions  is  easily  explicable.  From  the  time  when  you  were  my 
master  until  now  I  have  been  wont  to  bow  respectfully  to  your  opin- 
ions and  hardly  ever  has  there  been  any  divergence  of  convictions 
between  us;  on  the  contrary,  each  day  has  brought  forth  new  ties  that 
have  more  closely  united  and  identified  us. 

It  has,  therefore,  been  extremely  grievous  to  me  not  to  concur  in 
the  ideas  which  you  have  been  championing  in  the  discussions  of  the 
fifth  subconnnittee  and  to  have  been  constrained  to  combat  them  at 
each  of  the  sessions  which  I  have  attended,  and,  what  is  worst  of  all, 
to  combat  them  with  the  perhajjs  excessive  vehemence  which  I  am  in 
the  habit  of  putting  into  the  defense  of  my  personal  convictions. 

The  decision  which  I  have  reached  is,  however,  no  reason  why  I 
should  not  acquaint  the  fifth  subcommittee  in  a  written  form  with 
the  ideas  which  I  hold  in  regard  to  the  problem  that  is  absorbing  the 
attention  of  all  of  us,  and  if  my  avocations  leave  me  time  I  will  frame 
a  l^rief  and  simple  report  and  will  send  it  to  you,  that  it  may  be  added 
to  the  records  of  the  subcommittee. 

Nor  will  my  resolution  prevent  me  from  formulating  some  observa- 
tions as  to  the  report  of  Lie.  Genaro  Raigosa,  for  it  seems  to  me  that 
in  doing  so  I  am  giving  him  a  proof  of  the  great  interest  wliich  I 
feel  in  the  very  important  document  presented  by  him  to  the  fifth 
subcommittee. 

My  observations  will  be  very  brief  and  are  as  follows : 

I.  The  reserve  fund  ought  preferably  to  be  created  in  Mexico  and 
ought  to  consist  exclusivelj^  of  gold,  and  instead  of  issuing  drafts  on 
foreign  points  it  ought  rather  to  confine  itself  to  supplying  gold  for 
exportation. 

It  would  seem  to  be  the  opinion  of  all  of  our  colleagues  that  the 
reserve  fund  should  not  be  so  administered  as  to  convert  it  into  an 
exchange  bank,  properly  so  called,  destined  to  compete  with  the  bank- 
ing institutions  of  the  country.  It  has  been  maintained,  and,  as  I 
think,  rightly  maintained,  that  the  reserve  fund  should  only  be 
brought  into  action  in  extreme  cases  and  should  not  be  operated  so 
as  to  interfere  with  commercial  transactions.  This  object  can  only  be 
attained  if  tlie  body  controlling  the  fund  confines  itself  to  supplying 
gold  for  exportation,  for  without  doubt  gold  will  only  leave  the 
country  if,  after  offsetting  our  debit  and  credit  abroad,  it  shall  be 
found  necessary  to  ])ay  a  l)alance  to  our  foreign  creditors. 

If  tlie  fund  is  to  serve  exclusively  as  a  guaranty  for  the  currency 
and  is  destined  to  aft'ord  elasticity  to  that  currency,  it  will  be  found  of 
the  utmost  importance  to  confine  the  primary  object  of  its  existence 
to  the  f miction  I  have  just  mentioned.  Exchange  operations  Avill  con- 
tinue to  be  effected  in  the  same  way  as  hitherto,  the  banks  will 
contiime  to  l)e  the  intermediaries  between  foreign  and  native  mer- 
chants, and  the  fund  will  only  come  into  play  by  supplying  gold  for 
circulation  when  the  necessity  therefor  arises. 

If  the  obje(;t  sought  by  the  fifth  subconnnittee  is  what  I  think  it  is, 
it  will  be  easy  to  regulate  the  service  of  the  fund  and  lay  down  the 
rule  that  bars  of  gold  or  Mexican  coins  of  the  new  issue  will  only  be 
supplied  ui)oii  payment,  in  any  event,  of  a  commission  of  1  per  cent 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       363 

and  that  go\<\  will  only  be  paid  out  in  return  for  an  equivalent  quan- 
tity of  dollars  of  the  new  issue. 

ll.  It  seems  to  uie  dani>erous  to  invest  the  body  controlling  the  fund 
with  powers  to  issue  certificates  of  indebtedness  on  time,  payable  in 
silver  or  gokl,  with  or  without  interest. 

If  we  desire  to  imi)art  to  the  reserve  fund  a  character  of  real 
solidity,  it  nnist  in  no  case  be  ni^de  the  l)asis  of  credit  operations. 
The  fund  should  consist  of  gold  alone  and  should  only  part  with  it  in 
exchange  for  silver  coins  of  the  new  issue. 

AA\^  can  not  have  I'ccourse  to  systems  employed  by  the  United  States, 
for,  on  the  one  hand,  our  G()\'ernment  does  not  unfortunately  enjoy 
the  same  degree  of  credit  as  the  American  Government,  nor,  on  the 
other,  is  it  possible  for  us  to  offer  as  a  guaranty  for  the  success  of  the 
monetary  reform  any  confidence  that  our  Government  may  be  capable 
of  inspiring  for  a  long  period  of  time. 

The  American  Government  in  the  law  dealing  with  the  Philip- 
l)ines"  currency  instead  of  issuing  a  loan  and  setting  up  the  reserve 
fund  witli  the  proceeds  thereof,  empowered  the  corporati(m  control- 
ling the  fund  to  secure  gold  by  means  of  certificates  of  indebtedness. 
My  belief  is  that  our  Government  Avould  prefer  to  issue  a  loan  and  set 
up  the  fund  with  its  proceeds  rather  than  authorize  the  body  control- 
ling the  fund  to  make  use  of  its  credit. 

()n  the  other  hand,  short-time  gold  securities  could  not  be  issued  in 
the  interior  of  the  country,  and  if  they  were  to  be  issued  abroad  it 
were  better,  on  every  account,  that  the  Government  should  undertake 
a  direct  emission  of  long-time  securities. 

I  see  no  reason  why  the  management  of  the  fund  should  be  empow- 
ered to  issue  certificates  of  indebtedness  in  exchange  for  silver,  for 
the  onl}'^  silver  entering  the  fund  wall  be  that  which  is  withdrawn 
from  the  circulation  in  exchange  for  gold.  Save  and  except  for  that 
purpose  there  would  be  no  object  in  adding  a  stock  of  silver  to  the 
fund. 

Among  the  measures  to  be  put  in  practice  during  the  period  of 
transition,  mention  has  been  made  of  the  emission  of  certificates  for 
dollars  of  the  new  issue;  but  my  A'iew  of  the  matter  is  that  these  cer- 
tificates will  only  be  issued  in  exchange  for  dollars  of  the  old  issue, 
and  that  the  exclusive  object  of  the  measure  is  to  make  provision  for 
the  insufficient  capacity  of  our  mints,  Avhich  assuredly  could  not  in  a 
short  period  of  time  coin  the  quantity  of  dollars  that  will  be  neces- 
sary to  replace  the  dollars  at  present  in  circulation. 

These  are  the  only  observations  which  I  should  have  to  formulate 
with  respect  to  the  report  of  JNIr.  Kaigosa. 

I  avail  myself  of  this  op])ortunity  to  offer  you  a  renewed  assur- 
ance of  my  high  and  unvarying  regard. 

Joaquin  D.  Casasus. 


Annex  Xo,  7 — Report  of  Lie.  Joaquin  D.  Casasus. 

Sir:  The  discussions  that  have  taken  place  at  the  sessions  of  the 
fifth  subconnnittee  have  impressed  upon  me  the  conviction  that  some 
of  its  members  do  not  share  my  opinions  in  regard  to  the  means  that 
should  he  put  in  practice  in  order  to  afford  a  correct  solution  for  the 
monetary  problem  that  is  absorbing  our  attention. 


364       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

Inasmuch  as  each  of  the  various  members  of  the  fifth  subcommittee 
had  in  advance  made  a  serious  study  of  the  monetary  question  and 
had  found  in  such  study  the  ground  for  his  opinions,  it  can  not  be  ex- 
pected that  those  opinions  should  now  be  modified  and  become  uni- 
form or  that  a  given  project  should  command  unanimity  of  assent. 

It  is  therefore  the  duty  of  each  and  every  one  of  the  persons,  to 
whom  the  consideration  of  the  monetary  problem  was  referred  by  the 
department  of  finance,  to  formulate  his  opinion  and  give  his  reasons 
for  it. 

Moreover,  this  was  the  specific  desire  of  the  department  of  finance 
and  public  credit  in  appointing  the  monetary  commission,  for  the 
circular  of  February  4,  of  the  current  year,  explicitly  stated  that  the 
Government  did  not  expect  the  monetary  commission  to  give  an 
opinion  in  the  form  of  an  unanimous  or  majority  vote,  but  that  it 
merely  sought  to  learn  the  individual  views  of  the  various  persons 
whose  cooperation  had  been  invited,  so  that  it  might  be  in  a  position 
better  to  solve  the  grave  economic  questions  which  it  had  before  it. 

The  necessity  of  formulating  my  opinion  and  the  expedience  of 
stating  my  reasons  therefor  impel  me  to  bespeak  for  a  few  brief 
moments  the  attention  of  the  members  of  the  fifth  subcommittee, 
whose  duty  it  is  to  lay  before  the  commission  in  full  session  the  bases 
for  a  new  monetary  system  in  the  Kepublic  and  the  measures  that 
should  be  adopted  to  secure  fixity  of  international  exchange. 

The  report  which  I  presented,  together  with  Eng.  Manuel  Fernan- 
dez Leal,  director  of  the  mints,  contains  my  views  in  regard  to  the 
new  monetary  sj'Stem  which  it  behooves  us  to  adopt.  In  conse- 
quence I  must  only  address  myself  now  to  the  consideration  of  the 
questions  that  are  more  directly  connected  with  the  stabilization  of 
international  exchange. 

The  aim  of  the  Government  of  the  Republic,  in  modifying  its 
monetary  sj^stem,  is  to  impart  fixity  to  foreign  exchange,  and  it  de- 
sires to  attain  that  end  in  order  that  the  varied  forms  of  our  public 
Avealth  may  not  again  be  afi'ected  by  a  new  and  still  heavier  deprecia- 
tion of  silver  in  the  future,  and  that  the  evils  and  dangers  inherent  to 
constant  oscillations  in  exchange  may  hereafter  be  obviated. 

The  measures  on  which,  in  my  opinion,  the  monetary  reform  must 
be  based  are  threefold : 

I.  The  suspension  of  the  coinage  of  unlimited  legal  tender  silver  on 
private  account. 

II.  The  creation  of  a  gold  guaranty  fund  of  which  the  object  shall 
be  to  regulate  the  volume  of  coin  in  circulation  and  maintain  the 
parity  of  international  exchange  at  the  ratio  jjrovided  by  law. 

III.  The  opening  of  the  mints  to  the  free  coinage  of  gold. 

I  hold  that  the  mere  suspension  of  the  coinage  of  our  present  silver 
dollar,  though  it  Avould  tend  here,  as  it  has  in  other  countries,  to  dis- 
associate the  value  of  the  silver  coin  from  the  value  of  silver  bullion 
as  a  counnodity  on  the  London  market,  would  not  at  once  raise  the 
value  of  that  coin  to  legal  parity  with  gold,  and  thus  the  success  of 
the  monetary  reform  and  the  desired  stabilization  of  international 
exchange  would  be  coin])i'omised. 

The  inefficacy  of  the  measure  would  be  due  not  so  much  to  the 
special  circumstances  of  our  country  as  to  the  natural  effects  which 
the  su&'pension  of  silver  coinage  has  produced  in  every  country,  de- 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       365 

})eiidin^-  on  iho  jiireater  or  less  aniount  of  gold  hold  by  the  banks  or 
used  for  cireulation. 

The  scarcity  of  coin,  Avhich  wonld  be  the  only  efi'ect  due  to  suspen- 
sion of  coinage,  woukl,  it  is  true,  tend  of  itself  to  enhance  its  value; 
but  as  that  enhancement  Avould  have  to  be  the  work  of  time  and  the 
enlargement  of  currency  reciuirements,  unaccompanied  by  an  in- 
creased coefficient  in  the  rapidity  of  its  circulation,  the  result  would 
be  that  the  stabilization  of  exchange  would  not  at  once  be  attained, 
and  the  lack  of  innnediate  success  would  disqualify  the  country  from 
attracting  a  large  volume  of  foreign  capital,  without  which  it  would 
have  no  other  recourse  for  the  settlement  of  its  trade  balance  than  to 
use  for  that  purpose  a  coin  which  could  only  become  exportable  by 
reconversion  into  a  commodity,  subject  to  all  the  fluctuations  to 
which  the  price  of  that  commodity  is  exposed  in  the  world's  markets. 

The  possession  of  a  greater  or  less  amount  of  gold  is,  therefore,  an 
indispensable  condition  if  the  suspension  of  the  coinage  of  silver  is 
to  produce  automatically  all  its  effects;  and  seeing  that  there  is  no 
gold  in  circulation  here,  it  becomes  necessary  to  establish  a  gold  fund 
whose  functions  shall  be  identical  to  those  which  gold  would  perform 
if  it  circulated  in  the  country,  and  whose  aim  will,  therefore,  be  to 
compensate  the  lack  of  a  gold  circulation. 

If  the  object  of  the  gold  guaranty  fund  is  to  assure  at  once  the 
fixity  of  exchange,  there  can  be  no  objection  to  opening  the  mints  to 
the  free  coinage  of  gold,  for  if  currency  requirements  shall  demand 
a  larger  supply  of  monetary  imits,  commercial  interests  Avill  intro- 
duce gold  into  the  country,  and  as  soon  as  it  begins  to  be  coined 
absolute  certainty  will  exist  that  the  nation,  in  the  long  run,  will  pass 
with  ease  from  silver  monometallism  to  gold  monometallism. 

In  order  to  i:)rove  the  truth  of  my  assertions  I  proceed  to  study  as 
briefly  as  possible  the  history  of  the  suspension  of  silver  coinage,  the 
results  obtained  thereby  in  countries  which  have  had  recourse  to  that 
measure,  and  the  various  causes  to  which  their  success  is  to  be 
ascribed. 

All  the  nations  Avhich,  since  1873,  have  sought  to  ward  off  the 
effects  which  the  depreciation  of  silver  was  liable  to  produce  in  their 
silver  currencies  have  had  recourse  to  the  suspension  of  the  coinage 
of  silver  on  private  account  in  case  the  open  and  resolute  adoption  of 
gold  monometallism  did  not  seem  to  them  to  be  possible  nor  conducive 
to  their  interests. 

Gold  was  adopted  as  the  standard,  perhaps  as  a  result  of  the  resolu- 
tions adopted  by  the  international  conference  of  Paris  in  1867;  by 
the  German  Empire,  under  the  laws  of  December  4,  1871,  and  July  9, 
1873;  by  the  United  States  by  act  of  February  12,  1873;  by  the  Scan- 
dinavian states  under  the  monetary  convention  of  May  27,  1873, 
Avhich  was  the  basis  of  Norway's  currency  law  of  June  4,  1873,  and  by 
Japan  under  the  law  of  jSlarch  26,  1897. 

The  following  nations  successively  suspended  the  free  coinage  of 
silver  on  private  account :  Holland,  provisionally,  on  May  28,  1873, 
and  definitely  on  December  9,  1877;  France,  which  by  laws  of  Jan- 
uary 31,  1874,  and  April  26.  1875,  first  limited  that  coinage  and 
afterwards  by  decree  of  February  26,  1876,  suspended  it;  the  other 
nations  of  the  Latin  Union,  in  1875  and  1876;  Austria,  in  1879;  India, 
by  act  of  June  26,  1893,  and  Russia,  by  ukase  of  July  16,  in  the  same 
vear. 


366  GOLD    STANDAKD    IN    INTEKNATIONAL    TRADE. 

The  fundamental  difference  between  these  two  classes  of  measures 
lies  in  the  fact  that  whereas  the  countries  which  adopted  the  gold 
standard  demonetized  silver  and  proceeded  to  withdraw  inunediately 
all  the  coins  of  that  metal  in  circulation,  the  nations  Avhich  suspended 
the  coinage  of  the  Avhite  metal  on  private  account  retained  all  their 
existing  silver  coins  in  circulation,  investing  them  artificially  with  a 
value  equal  to  the  gold  coins  at  the  parity  provided  by  their  monetary 
legislation. 

As  the  results  achieved  by  countries  which  have  suspended  the  free 
coinage  of  silver  on  private  account  are  said  to  have  been  due  exclu- 
sively to  the  nature  and  scope  of  that  measure,  it  becomes  necessary  to 
study  it  closel}^,  for  it  constitutes  a  most  admirable  device  Avhereby 
nations  without  foregoing  the  services  which  their  silver  coins  in  cir- 
culation are  capable  of  rendering  to  them  have,  nevertheless,  suc- 
ceeded in  attaining  fixity  of  international  exchange. 

The  suspension  of  silver  coinage  is  a  measure  only  recently  adopted 
by  civilized  nations,  and  for  that  reason  it  has  not  hitherto  been 
studied  as  closely  as  it  deserves  to  be,  and  no  endeavor  has  been  made 
to  determine  its  scope  and  importance  from  the  standpoint  of  eco- 
nomical princij^les. 

Prior  to  the  depreciation  which  the  yellow  metal  underwent  as  a 
consequence  of  the  discovery  of  the  rich  gold  fields  of  California  and 
Australia,  the  European  nations  either  coined  simultaneousl}^  the  two 
precious  metals,  gold  and  silver,  at  a  predetermined  ratio  or,  accord- 
ing to  their  preferences,  adopted  one  or  the  other  of  the  metals  as  the 
basis  of  their  monetary  systems. 

The  monetary  systems  of  that  date  were  either  monometallic  or 
bimetallic,  but  in  either  case  the  metal  or  metals  chosen  to  do  duty  as 
money  operated  automatically,  were  coined  freely  on  private  account 
and  always  circulated  as  unlimited  legal  tendei*. 

Thus  the  scientific  foundation  on  which  all  monetary  systems  rested 
was  the  free  coinage  of  the  metal  or  metals  selected  to  act  as  money 
and  the  unlimited  legal-tender  capacity  with  which  said  metal  or 
inetals  were  invested. 

In  the  last  third  of  the  nineteenth  century  there  appeared  what 
many  persons  have  called  the ''  third  system,''  whereb}^  nations  that 
were  previously  under  the  bimetallic  regime  have  retained  their  sil- 
ver money  as  unlimited  legal  tender,  though  depriving  private  per- 
sons of  the  right  to  haA'e  it  coined  on  their  own  account  at  the  mints. 

This  third  system  has  in  consequence  repudiated  a  fundamental 
principle  to  Avhich  every  sound  currency  ought  to  conform. 

In  point  of  fact  every  sound  currency  ought  to  be  coined  freely  on 
private  account  and  to  be  legal  tender.  It  must  be  unlimited  legal  ten- 
der, for  if  it  is  not  it  can  not  be  received  in  payments  nor  extinguish 
the  obligations  which  men  reciprocally  contract.  And  its  mintage  on 
private  account  must  be  free,  for  thus  alone  can  the  quantity  of  cur- 
rency that  should  circulate  be  fixed ;  thus  alone  can  that  quantity  be 
augmented  in  pro])ortion  as  the  nation's  progress  eidarges  the  field 
for  its  use;  and  thus  alone,  in  fine,  can  the  currency  always  be  an 
exj^ortable  article,  destined  to  act  as  the  regulator  of  internal  and  for- 
eign couimerce  and  be  coined  or  melted  according  to  the  exigencies  of 
international  trade  relations. 

If  this  third  system,  which  has  been  picturesquely  called  the  "  limp- 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       367 

ing  standard,"  roi)iuliatos  one  of  the  economical  principles  that  has 
ever  been  the  foundation  of  a  good  currency,  it  affords,  on  the  other 
hand,  a  device  which  has  enabled  silver  coins  to  continue  circulating 
as  unlimited  legal  tender,  desjnte  the  enormous  and  ever-widening 
disj)arity  between  the  commercial  values  of  the  two  precious  metals, 
gold  and  silver. 

But  does  this  third  system  deserve  to  be  called  a  "■  system?"  Could 
it  be  adopted  by  nations  permanently  on  the  same  footing  as  other 
systems  based  on  the  principles  of  economical  science? 

The  mere  fact  that  a  legislative  measure,  which  any  nation  may 
adopt,  violates  the  basic  principles  of  a  good  currency  suffices  to  de- 
prive that  currency  of  any  claim  to  be  considered  as  a  monetary  sys- 
tem properly  so  called.  It  can  only  rank  as  a  transitional  measure, 
destined  not  to  serve  as  the  basis  of  a  permanent  system,  but  as  a  link 
between  silver  monometallism  and  gold  monometallism,  or  between 
bimetallism  and  monometallism. 

The  origin  of  the  suspension  of  silver  coinage  gives  us  an  insight 
into  the  object  had  in  view  thereby. 

The  depreciation  Avhich  gold  underwent  in  the  decade  from  1854 
to  1864  impelled  the  nations  to  demonetize  it ;  and  when  the  depre- 
ciation of  silver  in  relation  to  gold  set  in,  the  same  nations  experi- 
enced the  necessity  of  eliminating  silver  from  their  monetary  circu- 
lations. 

However,  as  it  w^as  not  possible  for  the  nations  to  continue  chang- 
ing their  monetary  systems  backward  and  forward  so  as  always  to 
have  the  dearer  metal  as  their  standard,  whenever  a  change  in  the 
commercial  value  of  the  precious  metals  occurred,  certain  powers  de- 
cided to  susi^end  the  coinage  of  the  white  metal  for  the  twofold  object 
of  protecting  their  commercial  future  and  securing  time  to  see 
whether  the  depreciation  of  silver  would  prove  temporary,  as  the  de- 
preciation of  gold  had  been,  or  would  be  permanent  and  of  such  pro- 
portions as  to  rob  silver  of  its  usefulness  for  monetary  purposes. 

Thus  the  idea  that  the  depreciation  of  silver,  due  to  Germany's 
monetary  reform,  might  prove  transient  rather  than  lasting,  origi- 
nated the  legislation  which  in  Holland,  France,  and  other  nations  of 
the  Latin  Union  suspended  the  coinage  of  silver  on  private  account. 

Unfortunately  the  depreciation  of  silver,  instead  of  being  transient, 
proved  permanent  and  became  more  and  more  accentuated,  until  the 
disparity  between  the  legal  value  of  the  circulating  silver  coins  in 
nations  which  had  suspended  the  free  coinage  of  silver  and  the  com- 
mercial value  of  silver  bullion  on  the  London  market  became  enor- 
mous. 

Hence  the  nations,  especially  those  nations  which  had  a  large  quan- 
tity of  silver  coins  in  circulation,  have  either  been  unable  to  bear  the 
loss  that  would  have  been  entailed  by  exchanging  those  coins  for  gold 
at  the  legal  parity  or  they  have  found  it  impossible  to  secure  the  gold 
on  account  of  the  heavy  demand  of  the  civilized  world  for  that  metal 
during  the  last  thirty  years.  Owing  to  this  fact,  what  ought  only  to 
have  been  a  transitional  measure  of  a  more  or  less  brief  duration  has 
become -the  basis  of  a  regular  system;  but  though  in  the  case  of  some 
nations  it  shows  outward  signs  of  permanence,  it  w^U  in  the  end 
prove  to  have  been  only  a  natural  ste])  toward  the  monetary  regime 
of  which  erold  is  the  sole  and  exclusive  basis. 


368       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

All  that  has  been  said  goes  to  establish  the  fact  that  the  suspension 
of  the  coinage  of  a  metal  on  private  account,  while  retaining  the 
coins  made  of  that  metal  in  circulation  as  unlimited  legal  tender,  is 
not  a  monetary  system  at  all,  l)ut  a  transitional  measure  m  the  evolu- 
tion from  silver  monometallism  or  bimetallism  to  a  currency  chiefly 
composed  of  coins  made  of  the  metal  adopted  as  the  new  standard. 

But  although  this  measure  can  not  be  permanentl}^  embraced  as  if 
it  were  in  reality  a  monetary  system,  it  has  not  failed  to  produce  the 
results  which  the  nations  set  before  themselves  when  they  adopted  it. 

AVliat  are  those  results? 

The  suspension  of  the  coinage  of  a  metal  differs  from  its  demone- 
tization in  that  under  the  latter  regime  all  coins  made  of  the  demone- 
tized metal  are  withdrawn  and  in  the  other  case  the  coins  continue  to 
circulate  as  before  as  unlimited  legal  tender. 

From  this  it  will  be  understood  that  the  effects  of  a  change  of 
standard  and  the  effects  of  the  suspension  of  a  metal's  coinage  on 
private  account  must  be  distinct. 

The  mere  change  of  monetary  standard  only  affects  the  commer- 
cial value  of  the  metal  demonetized,  whereas  the  suspension  of  coin- 
age, independently  of  its  influence  on  the  value  of  the  metal,  brings 
about  a  divorce  between  the  value  of  that  metal  as  bullion  and  the 
value  of  the  coins  of  that  metal  which  remain  in  circulation. 

The  change  of  standard  affects  the  value  of  the  discarded  metal 
both  because  it  diminishes  the  demand  therefor  (seeing  that  it  is  no 
longer  required  for  monetary  uses)  and  because  it  increases  the  sup- 
ply, seeing  that,  as  a  general  rule,  the  old  coins  thereof,  which  are 
withdrawn,  are  sold  as  bullion  by  the  government  making  the  change. 

The  suspension  of  coinage,  though  also  affecting  the  value  of  the 
metal  as  a  commodity,  affects  it  only  through  limitation  of  the  de- 
mand, which  perforce  will  be  more  restricted  than  formerly. 

But  the  difference  does  not  lie  in  the  influence  exercised  on  the 
value  of  the  metal  but  in  the  disassociation  established  between  the 
value  of  the  metal  as  a  commodity  and  the  value  of  the  metal  as  a 
coin,  a  disassociation  due  to  the  fact  that  while  the  value  of  the  metal 
as  a  commodity  tends  downward,  the  value  of  the  metal  as  a  coin 
experiences  a  necessary  enhancement. 

How  does  that  disassociation  take  place? 

The  phenomenon  is  easily  explained.  The  value  of  the  metal  on 
the  market  ceases  to  affect  the  value  of  the  metal  from  which  are 
made  the  coins  remaining  in  circulation;  while  the  former  declines, 
on  account  of  its  greater  plentifulness  or  the  curtailed  demand,  the 
latter  rises  on  account  of  its  greater  scarcity  in  relation  to  constantly 
increasing  currency  requirements. 

As  every  progressive  country  needs  constant  additions  to  its  cur- 
rency and  as  when  free  coinage  has  been  suspended  those  additions 
are  not  forthcoming,  the  result  is  that  the  enlarged  demand  is  met  by 
an  unaltered  supply,  and  by  virtue  of  the  law  of  supply  and  demand 
the  coins  in  circulation  will  appreciate  daily,  their  value  increasing 
in  proportion  as  the  want  of  them  becomes  more  pressing. 

There  is,  however,  a  factor  that  tends  to  counteract  this  natural 
operation  of  the  law  of  supply  and  demand.  As  the  coins  in  circu- 
lation enter  daily  into  a  successive  series  of  transactions,  currency 
requirements  do  not  depend  exclusively  on  the  progress  of  nations 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       369 

and  the  volume  of  their  business,  but  also  on  the  greater  or  less  de- 
gree of  rapidity  with  which  the  currency  can  be  made  to  do  duty  for 
the  purposes  of  trade. 

The  coefficient  of  rapidity  of  the  monetary  circulation  is,  therefore, 
an  element  that  nuist  be  taken  into  account  when  studying  the  effects 
of  the  scarcity  value  of  a  currency. 

If  the  restriction  of  the  quantity  of  coins  in  circulation  through 
the  suspension  of  coinage  on  private  account  is  compensated  by  a 
higher  coefficient  of  rapidity  in  circulation,  it  is  unquestioned  that 
the  eii'ects  of  scarcity  value  will  not  be  felt  and  that  the  value  of  the 
coins  in  circulation  Avill  not  be  raised. 

Thus  when  an  endeavor  is  to  be  made  to  raise  the  value  of  the  coins 
in  circulation  merely  through  the  suspension  of  free  coinage,  it  is 
necessary  first  to  be  sure  that  an  acceleration  of  the  circulation  will 
not  counteract  the  natural  operation  of  the  law  of  scarcity. 

In  consequence,  the  disassociation  between  the  price  of  a  metal  as 
a  connnodity  on  the  nuirkets  of  the  world  and  the  value  of  the  same 
metal  as  a  coin  in  the  internal  circulation  of  a  country  will  only  be 
attained  when  it  is  possible  to  enhance  the  value  of  the  metal  as  a  coin 
through  scarcity,  and  that  enhancement  will  only  take  place  when 
the  increase  in  the  rapidity  of  circulation  is  not  sufficient  to  neutralize 
the  ever-increasing  expansion  of  currency  requirements. 

Furthermore,  the  disassociation  that  may  be  brought  about  between 
the  value  of  a  metal  as  a  commodity  and  the  value  of  the  same  metal 
as  a  coin  in  a  country's  internal  circulation,  may  be  stable  or  unstable. 
Its  attainment  does  not  assure  its  permanence ;  on  the  contrary,  it  may 
easily  disappear  if  the  normal  conditions  of  the  internal  circulation 
are  interfered  with. 

Now,  when  Avill  it  be  stable  and  when  will  it  be  unstable? 

Stability  of  the  efi'ects  that  flow  from  the  mere  suspension  of 
silver  coinage  on  private  account  can  only  be  secured  when  the  trade 
balance  is  favorable,  and  it  Avill  disappear  as  soon  as  the  trade  balance 
compels  the  nation  to  i)ay  the  debt  of  its  international  transactions 
in  the  circulating  medium. 

These  facts  arc  so  easily  comj^rehensible  that  they  do  not  require 
explanation.  Coins  made  of  a  metal  whose  free  coinage  has  been 
suspended  are  not  coins  of  full  value,  but  of  an  artificially  raised 
value,  and,  consequently,  the}^  are  not  exportable.  They  rather  resem- 
ble the  subsidiary  coins  which,  being  of  less  fineness  than  the  unlim- 
ited legal-tender  coins,  are  restricted  to  the  internal  circulation  from 
which  they  should  never  part;  or,  rather,  they  are  more  like  bank 
notes  which  can  only  circulate  in  the  localities  where  they  can  at 
pleasure  be  converted  into  coin. 

If  a  coin  has  greater  value  in  the  interior  of  a  country  than  it  pos- 
sesses as  bullion  abroad,  it  can  never  be  exported  save  as  a  connnodity, 
and  when  exported  it  will  lose  the  higher  value  with  which  it  had 
been  invested  in  the  internal  circulation,  and  thus  the  barrier  between 
the  value  of  the  metal  as  a  commodity  and  the  value  of  the  metal  as  a 
coin  will  break  down. 

The  suspension  of  the  free  coinage  of  silver  can  onl}^  maintain  the 
enhanced  value  of  a  coin  in  internal  markets  if  the  balance  of  trade 
does  not  constrain  the  nation  to  export  its  circulating  coins. 

S.  Doc.  128,  58-3 24 


370       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

When  the  necessity  of  settling  an  international  trade  balance  in 
coin  forces  the  exportation  of  the  precious  metals,  the  effects  of  the 
mere  suspension  of  the  free  coinage  of  silver  will  be  nullified  and  all 
the  results  attained  thereby  Avill  disappear,. 

The  history  of  the  suspension  of  the  free  coinage  of  silver  in  the  last 
quarter  of  the  nineteenth  century  proves  the  truth  of  these  assertions 
and  shows  the  causes  to  which  the  results  obtained  in  Europe,  Amer- 
ica, or  British  India  are  due. 

The  suspension  of  the  free  fcoinage  of  silver  has  occurred  under 
two  different  conditions : 

I.  With  a  stock  of  gold  coins,  large  or  small,  either  in  circulation 
or  held  by  governments  or  banks. 

II.  Without  a  stock  of  gold  coins.  • 
The  results  that  have  been  secured  under  these  two  different  con- 
ditions may  be  studied  either  in  the  light  of  normal  circumstances 
and  a  faA^orable  trade  balance  or  in  the  light  of  circumstances  that 
necessitate  the  settlement  of  a  trade  balance  in  the  precious  metals, 

Wlien  there  is  a  stock  of  gold  coins,  either  in  circulation  or  held 
by  the  banks  or  public  authorities,  whether  that  stock  be  great  or 
small,  the  effects  of  the  suspension  of  free  coinage  become  operative 
immediately;  the  value  of  the  silver  coins  in  the  country's  internal 
circulation  becomes  at  once  equal  to  that  of  the  gold  coins,  at  the  ratio 
provided  by  the  monetary  laws;  international  exchange  settles  near 
parity  and  stays  there  with  relative  stability. 

These  phenomena  are  easily  explainable.  The  value  of  the  silver 
coins,  in  spite  of  the  decline  of  silver  bullion  on  the  market  for 
the  precious  metals,  stands  at  an  equality  with  the  value  of  the  gold 
coins  at  the  ratio  fixed  by  law : 

1.  Because,  OAving  to  their  scarcity,  the  value  of  the  silver  coins 
tends  to  rise; 

2.  Because  the  silver  coins  may  easily  be  exchanged  at  par  for  gold ; 
and 

3.  Because  currency  requirements,  not  satisfied  with  the  quantity  of 
silver  coins  on  hand,  tend  to  retain  gold  in  circulation,  notwithstand- 
ing the  higher  commercial  value  of  the  latter  metal  abroad. 

The  fixity  of  exchange  at  the  nearest  possible  approach  to  legal 
parity  is  assured : 

1.  Because,  inasmuch  as  gold  is  available  for  shipment  abroad, 
there  exists  in  realit}^  an  exportable  coin  for  the  contingency  of  an 
adverse  trade  balance;  and 

2.  Because,  by  means  of  various  artificial  devices,  such  as  coin- 
age dues  or  premiums  charged  on  gold  for  exportation,  it  is  possible 
to  hold  gold  back,  so  that  it  may  be  exported  on  the  smallest  scale 
])ossible,  which  aids  the  natural  tendency  which  nations  feel  to  main- 
tain the  equilibrium  of  their  foreign  trade. 

When  there  are  no  gold  coins  in  circulation  and  none  held  by  the 
banks  or  by  the  government,  it  is  possible,  sooner  or  later,  by  means 
of  currency  contraction,  to  raise  the  value  of  the  silver  coins  to  legal 
parity  with  gold;  but  tlie  fixity  of  exchange  can  not  be  maintained 
in  the  event  of  an  adverse  trade  balance,  for  as  there  are  no  gold 
coins  to  export  and  as  it  thus  becomes  necessary  to  settle  the  balance 
with  silver  coins,  the  latter  Avill  again  become  a  commodity,  subject, 
as  formerly,  to  the  fluctuations  of  silver  bullion  on  the  world's 
markets. 


GOLD    STANDARD    IN    INTEEI^ ATIONAL    TRADE.  37 1 

As  will  be  seen,  there  are  various  fundainental  differences  between 
the  effects  which  the  suspension  of  silver  coinage  jiroduces  according 
as  there  is  or  is  not  a  stock  of  gold  coins  cither  in  circulation  or  in 
reserve. 

In  the  first  place,  when  there  is  a  stock  of  gold,  the  value  of  the 
silver  coins  will  rise  automatically  to  legal  parity,  due  rather  to  the 
interchangibility  of  tlie  two  metals  than  to  the  scarcit}^  value  of  the 
silver  coins. 

AMien  there  is  no  stock  of  gold  coins,  the  appreciation  of  the  silver 
coins  must  be  the  work  of  time  and  the  gradual  enhancement  of  the 
currency  through  contraction. 

In  the  second  plac(%  when  there  is  a  stock  of  gold  coins,  exchange 
is  maintained  as  near  as  possible  to  parity  because  there  is  always 
an  availal)le  supply  of  exportable  coins  wdierewith  to  settle  an  adverse 
trade  balance;  whereas,  if  such  coins  are  lacking,  the  system  breaks 
down  and  the  currency  sutlers  inevitable  derangement. 

Two  instances  may  be  cited  as  the  best  proof  of  these  assertions — 
viz.,  the  currency  reform  carried  out  by  Holland  between  the  year 
1873  and  the  year  1877,  and  the  currency  reform  effected  in  India 
by  virtue  of  the  law  of  June  20,  1893.  The  reform  in  Holland, 
wliereby  the  free  coinage  of  silver  was  suspended,  was  effected  con- 
currently with  the  holding  of  a  supply  of  gold,  though  a  very  scant 
one,  by  the  Bank  of  the  Netherlands,  while  in  the  case  of  India  there 
was  an  absolute  lack  of  gold  coins. 

Holland  suspended  the  coinage  of  silver  on  private  account,  first 
provisioiially  and  afterward  definitely. 

AVhen  that  country  initiated  the  currency  reform  the  stock  of  gold 
florins  in  the  Bank  of  the  Netherlands  w^as  27,833,079,  and  exchange 
on  London,  based  on  the  value  of  silver  in  the  London  market, 
showed  a  difference  of  almost  G  per  cent  above  legal  parity. 

We  may  divide  the  period  in  which  the  currency  reform  was  effected 
into  three  periods:  From  January  to  September,  1874;  from  April, 
1875,  to  May,  187G,  and  from  October,  1S7(),  to  October,  1877. 

In  the  first  period  silver  fell  on  the  London  market  from  59d., 
at  which  the  ratio  between  gold  and  silver  is  1  to  15.98,  to  57fd., 
showing  a  ratio  of  1  to  16.3(). 

The  exchange  at  Amsterdam  on  London  at  that  time  was  11.86 
florins  as  a  minimum,  rising  to  11.93. 

In  the  second  period  tlie  price  of  silver  fell  from  574:d.,  equivalent 
to  a  ratio  oetween  gold  and  silver  of  1  to  1G.47,  to  52K1.,  at  wdiich 
the  ratio  is  1  to  17.90;  and  yet  the  rate  of  exchange  at  Amsterdam 
on  London  oscillated  between  11.72  florins,  minimum,  and  12.11, 
maximum. 

In  the  third  period  the  price  of  silver  rose  from  51f d.  to  a  maximum 
price  of  57j^d..  thereafter  receding  to  54^'d.,  and  the  exchange  between 
Amsterdam  and  London  was  maintained  between  12. IJ  as  a  minimum 
and  12.12  as  a  maxinunn. 

The  divorce  effected  between  the  value  of  the  silver  contained  in 
the  Dutch  florin  and  the  vahie  of  sihcr  bullion  on  the  London  market, 
coupled  with  the  suuiU  gold  stock  of  the  Netherlands  Bank,  sufficed 
to  maintain  relative  i)arity  of  exchange  betAveen  Amsterdam  and  Lon- 
don, more  or  less  at  a  ratio,  bdween  the  gold  of  the  English  sovereign 
and  the  silver  of  the  florin,  of  1  to  15.55, 


372 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE, 


The  stock  of  gold  and  silver  in  the  Bank  of  the  Netherlands  in 
the  period  from  December,  1871,  to  June,  1877,  showed  the  following 
oscillations : 


Date. 


Gold. 


Silver. 


December,  1871 

June  1872 

December,  1872 

June.  1873 

December,  1873 

June,  1874 

December,  1874 

June,  1875 

December,  1875 

June.  1876 

December,  1876 
June,  1877 


Florins. 
5,522,513 
27,969,273 
27,969,273 
27,83:^.079 
39,972,292 
56,297,559 
55,297,886 
61,180,968 
69,250,690 
64,457,302 
64,257,952 
74,792,866 


Florins. 
1:^8,301,458 
125,946,177 
92,863.52.5 
78,078,:S71 
68,  .521, 280 
76,a58,547 
82,216,088 
8(J,180,888 
89,517,731 
97.  .527, 588 
89,261,289 
76,841,035 


The  foregoing  table  illustrates  the  success  of  the  currency  reform ; 
for  not  only  did  the  stock  of  silver  steadily  diminish  in  proportion  to 
ihe  increase  in  the  stock  of  gold,  but  starting  with  a  sum  which,  pro- 
portionately, was  almost  insignificant,  the  stock  of  gold  rose  until 
it  amounted  to  95  per  cent  of  the  stock  of  silver. 

The  suspension  of  the  coinage  of  silver  and  the  free  coinage  of  gold 
had  not  only  disassociated  the  value  of  silver  coins  from  the  value  of 
silver  bullion,  but  had  attracted  gold  into  circulation  and  the  favor- 
able rates  of  exchange  had  retained  it  there,  assuring  to  the  fullest 
extent  the  legal  parit}^  between  gold  and  silver. 

Nevertheless,  currency  conditions  underwent  a  perturbation  and 
the  rate  of  exchange  became  unfavorable  to  Holland;  and  had  it  not 
been  for  the  considerable  stock  of  gold  accumulated  by  the  Bank  of  the 
Netherlands  the  success  of  the  monetaiy  reform  would  have  been  con- 
verted into  failure.  When  Holland's  turn  came  to  export  the  precious 
metals  she  had  recourse  to  gold,  and  the  stock  of  that  metal  in  the 
Bank  of  the  Netherlands  was  drained  to  the  lowest  limit. 

The  following  table  shows  the  stocks  of  gold  and  silver  held  by  the 
banks  in  question  in  the  months  of  June  and  December  from  1877  to 
1882: 


Date. 


Gold. 


Silver. 


December,  1877 

June,  1878. 

December,  1878 

June,  1879 

Decembc^r,  1879 

June,  1880 

December,  1880 

June,  1881 

December,  1881 

June,  1882 

December,  1882 


Florin.<s. 
.50,509,237 
44,298,531 
44,034,172 
68,887,689 
73,425,259 
80,;378,866 
.56,861,791 
.50,440,142 
18,158,479 
21,868,007 
5,272,728 


Florins. 

76,867,697 

70,6:«,2.52 

77,217,843 

77,260  :^oo 

80,901,513 

81,350,905 

84,844,426 

89,646,566 

89,035,713 

92,04;i,5:« 

92,347,767 


The  foregoing  table  shows  that  between  June,  1880,  and  December, 
1882,  the  stock  of  gold  dwindled  from  a  little  more  than  80,000,000 
florins  to  5,272,728  florins. 

Holland's  monetary  reform,  therefore,  achieved  the  desired  object, 
thanks  to  the  stock  of  gold  held  by  the  Bank  of  the  Netherlands, 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 


873 


which  facilitated  the  maintenance  of  exchange  not  only  under  normal 
conditions,  but  also  in  the  presence  of  an  adverse  trade  balance.  The 
Dutch  merchants  were  always  able  to  obtain  gold  readily  for  purposes 
of  exportation,  and  the  natural  operation  of  the  phenomena  of 
exchange  has  enabled  that  country  to  accumulate  gold  when  exchange 
was  favorable  to  her  and  to  settle  her  balance  therewith  when 
exchauge  became  adverse. 

The  sj'^stem  is  pronounced  by  Dutch  economists  not  to  be  exempt 
from  danger,  because,  as  it  has  been  impossible  to  withdraAv  all  the  sil- 
ver coins  from  circulation  and  to  exchange  them  for  gold,  it  rests  upon 
a  fiction;  but  it  is  unquestioned  that  if  its  dangers  have  been  reduced 
to  a  minimum  and  Holland  has  been  enabled  to  maintain  stability  of 
exchange  for  a  period  of  thirty  years,  those  facts  are  due  to  the  stock 
of  gold,  inconsiderable  though  it  has  been,  and  to  the  facility  w^ith 
Avliich  gold  has  been  furnished  for  exportation  by  the  Bank  of  the 
Netherlands. 

India's  monetary  reform  was  accomplished  by  virtue  of  the  law"  of 
June  '20,  1893,  which  closed  the  Indian  mints  to  the  free  coinage  both 
of  gold  and  silver,  Avliile  authorizing  the  mints  to  receive  gold  in 
exchange  for  silver  at  the  rate  of  16d.  per  rupee  or  15  rupees  per 
pound  sterling. 

The  monetary  reform  in  India  was  not  at  once  attended  with  the 
results  which  its  authors  had  anticipated,  and  the  rate  of  exchange 
provided  by  law  was  not  in  reality  attained  until  the  year  1898-99. 

The  following  table  shows  a  series  of  years,  with  the  mean  rate  of 
exchange  and  the  value  of  the  standard  ounce  of  silver  in  pence  in 
<;ach  of  those  years : 


Years. 

Exchange. 

Standard 

ounces  of 

silver. 

1887-88 

Pence. 
16.898 
16.379 
16.566 
18.089 
16.733 
14.985 
14.547 
13. 101 
13.638 
14. 451 
15.354 
15.978 

Pence. 

44| 
42f 
42}| 
47  J  i 

1888-89 _ 

1889-90 

1890-91 

1891-92 

45  IB 

1892-93 

3953 

1893-94 

35>o 

1894-95 

38!^ 

1895-96 

29t 
BO} 
27t*- 

1896-97 

1897-98 .     . 

1898-99 ■ 

2Q\i 

The  aim  of  the  government  of  India  w^as  not  o\\\y  to  disassociate  the 
value  of  the  rupee  and  the  value  of  silver  bullion,  but  to  raise  the 
value  of  the  rupee  to  Kkl. 

The  primary  object,  viz.,  to  disassociate  the  price  of  the  rupee  from 
the  price  of  silver  Ijullion,  was  attained  at  once,  for  undoubtedly  the, 
j)rice  of  exchange  did  not  follow  the  fluctuations  of  the  price  of  silver 
bullion;  but  the  coutraction  which  the  currency  was  to  have  under- 
gone to  raise  the  value  of  the  coins  in  circulation  did  not  occur,  or,  if 
it  did  occur,  it  was  incapable  unaided  of  bringing  about  the  desired 
consummation. 

What  prevented  the  failun*  of  monetary  reform  in  India  was  doubt- 
less the  favorable  and  ever-increasing  balance  of  its  foreign  trade,  a 
balance  due  partly  to  the  increased  value  of  the  exportations,  partly 


374       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

to  the  loans  negotiated  in  England  on  India's  account,  and  partly  to 
the  steady  investment  of  foreign  capital  which  did  not  altogether 
shun  the  Indian  field.  Had  it  not  been  for  those  special  circum- 
stances, which  could  only  occur  in  the  case  of  India,  the  mere  suspen- 
sion of  the  coinage  of  silver,  without  gold  coins  either  in  circulation 
or  in  the  cotl'ers  of  the  banks,  woukl  have  left  the  price  of  the  rupee 
once  more  at  the  mercy  of  the  price  of  silver  bullion  in  the  event  of  an 
iQifavorable  trade  balance,  and  would  have  com])elled  India  to  settle 
in  silver  the  balance  in  its  commercial  relations  Avith  foreign  countries. 

The  instances  cited  prove  the  principles  previously  enunciated  and 
illustrate  the  natural  scope  of  the  mere  suspension  of  silver  coinage. 

Summing  up  what  has  been  said,  we  may  lay  down: 

I.  That  the  suspension  of  silver  coinage  merely  tends  to  establish 
a  disassociation  between  the  value  of  the  metal  and  the  A^alue  of  the 
coins  made  therefrom. 

II.  That  the  suspension  of  the  coinage  of  silver  tends  to  raise  the 
value  of  the  silver  coins  in  circulation  on  account  of  their  scarcity. 

III.  That  the  operation  of  the  law  of  scarcity  may  be  neutralized 
by  an  increased  coefficient  of  rapidity  in  monetary  circulation. 

IV.  That  the  disassociation  which  the  suspension  of  free  coinage 
establishes  between  the  value  of  the  coin  and  the  value  of  the  metal 
of  "which  that  coin  is  made  is  onh^  stable  when  unfavorable  exchange 
conditions  do  not  necessitate  the  exportation  of  the  coin  which  has 
been  invested  with  an  enhanced  value  in  the  internal  circulation. 

V.  That  even  though  the  sih^er  coins  are  not  exportable  the  dis- 
association may  be  lasting  and  may  impart  fixity  to  exchange,  pro- 
vided there  is  a  stock  of  gold  either  in  circulation  or  in  the  coffers 
of  the  banks. 

Applying  these  principles  to  Mexico,  it  wdll  be  easy  to  show  that 
though  the  suspension  of  the  coinage  of  imlimited  legal-tender  silver 
on  private  account  is  the  first  and  basic  measure  of  currency  reform, 
it  must,  in  order  to  produce  the  beneficial  results  expected  from  it, 
be  supplemented  by  the  creation  of  a  gold  guaranty  fund  whose 
object  will  be  to  regulate  the  volume  of  coin  in  circidation  and  main- 
tain the  parity  of  international  exchange  at  the  ratio  established 
by  law. 

The  suspension  of  the  free  coinage  of  silver  woidd  not  suffice  to 
stabilize  international  exchange : 

1.  Because  Mexico,  despite  the  progress  which  it  has  achieved, 
absorbs  annually  a  very  slight  quantity  of  coin,  and  therefore  the 
enhancement  of  the  value  of  the  circulating  medium  would  have  to 
be  the  work  of  a  great  many  years. 

2.  Because  in  Mexico  a  scarcity  of  currency  would  be  more  than 
compensated  Iw  an  increased  coefficient  of  the  rapidity  of  its  cir- 
culation. 

3.  Because,  although  Mexico  produces  gold,  there  is  no  gold  in 
circulation  and  no  stocks  of  that  metal  accumulated  in  the  banks. 

4.  Because  Mexico  has  an  adverse^  trade  balance  and  only  settles 
same  by  means  of  the  foreign  caj)ital  that  seeks  investment  in  the 
conn  try. 

Mexico  really  absorbs  a  very  small  (juantity  of  coin  aiuHuilly. 

As  the  Mexican  dollar,  besides  acting  as  currency  at  home,  is  also 
an  international  trade  coin,  it  is  exported  as  a  Qommodity.  From 
the  total  quantity  of  silver  coined  it  is  therefore  necessary  to  deduct 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 


375 


the  quantity  of  Mexican  dollars  exported  in  order  to  get  an  idea  of 
the  amount  absorbed  for  purposes  of  circulation. 

Among  the  statistical  tables  published  by  the  secretary  of  the 
commission  is  one  that  relates  to  the  coinage  of  si  her  and  the  exporta- 
tion of  Mexican  dollars,  and  the  facts  derivable  from  said  table  are 
conclusive. 

The  table  is  as  follows: 


Years. 

Coinage  of 
silver. 

Exportation 

or  coined 

silver. 

Difference 
between  ex- 
portation of 
coined  silver 

and  total 
coinage. 

1877-78                              - - 

$22,084,203 
22,162,988 
24, 018,  .529 
24,617,395 
25,146,260 
24,083,922 
25,377,379 
25,840,728 
26,991,805 
26,844,031 
25,862,977 
26,031,223 
24,328,326 
24,2.37,449 
25,527,018 
27,169,876 
30,185,612 
27,628,981 
22,6:34,788 
19,296,009 
21,427,057 
20,184,117 
18,102,6:30 
18,290,:3i)0 
24,  .509, 850 

.  $18,120,296 
16,366,877 
16,783,317 
1:3,183,954 
11,607,888 
22,969,583 
25,5)99,875 
25,394,262 
21,969,957 
21,955,759 
16,841.117 
22,086,:3:37 
23,084,489 
17,622,171 
26,478,376 
27,170,865 
17,386,338 
17,077,119 
20,377,663 
14,  .578, 958 
18,214,989 
14,116,935 
10,872,874 
16.132,879 
11,:351,705 

$3,963,907 

1878-79 - 

5,-96,111 

187SJ-80 

7,235,212 

1880-81                                         

11,43:3,441 

1881-82 

13,538,372 

1882-83 

1,113,339 

1883-84                                          ..             

622, 496 

18.H4-85                                - 

446, 466 

1885  86     .      .- - 

5,021,848 

188(>-J<7.. 

4,888,272 

1887-88                              

9,021,860 

1888-89 

3,344,886 

1889-90 _ - 

1,243,837 

1890-91 

6,615,278 

1891-92            .            

951,358 

1892-93 - 

989 

189:^-94 

12,799,274 

1894-95                                                           ..                          

10,551,862 

189.5-96                            - 

2,257,125 

1896-97 

4,717,051 

1897-98 

3,212,068 

1898-99                                 

6,067,182 

1899-1900              - - 

7,229,2.56 

1900-1901 _ 

1901-2 -- 

2,151,511 
13,158,085 

602,283,543 

468,344,443 

137,389,056 

Translator's  Note. 
coinage. 


-It  will  be  noticed  that  in  some  of  the  years  exportation  exceeded 


Before  drawing  conclusions  from  the  figures  contained  in  the 
foregoing  table,  I  must  observe,  as  the  third  subcommittee  had  pre- 
viously done  in  its  report,  that  the  returns  for  the  quinquennial  period 
1877-78  to  1881-82  can  not  be  exact,  owing  to  the  tax  then  collected 
on  the  exportation  of  coined  silver. 

In  spite  of  this  circumstance  the  total  amount  of  the  coinage  in 
the  twenty-five  years  to  which  the  foregoing  table  refers  is  $602,283,- 
513;  the  exportation  totals  $1()8,311,113,  and  tlie  diiference  between 
exportation  and  coinage  is  $137,389,050.  The  average  may  therefore 
be  given  at  $5,495,562,  or  $5,000,000  in  round  numbers. 

If,  as  has  been  calculated  by  the  third  subcommittee,  the  stock  of 
coin  in  the  country  is  $130,000,000,  the  total  increase  that  coinage 
is  capable  of  producing  is  3^'  per  cent. 

From  the  foregoing  data  it  is  easy  to  conclude  that  if  an  attempt 
is  made  to  bring  about  a  rise  in  the  value  of  silver  coins  in  circulation 
through  the  law  of  scarcity,  a  great  number  of  years  will  have  to 
elapse  before  the  lack  of  currency,  demanded  by  the  country's 
development,  can  cause  an  appreciation  in  the  value  of  the  coins 
circulating  in  the  Republic. 

But  in  addition,  in  ^Mexico  to  a  greater  extent,  perhaps,  than  in 
any  other  country,  the  effects  of  the  scarcity  of  the  monetary  unit 


3^6  GOLD   STANDARD   IN    INTERNATIONAL   TRADE. 

would  be  more  than  compensated  by  an  increased  coefficient  of 
rapidity  of  circulation. 

It  is  a  fact  that  no  one  can  question  that  Mexico  in  the  last  decade 
has  achieved  enormous  progress;  her  production  and  her  commercial 
transactions  of  every  kind  have  been  increased  tenfold. 

If  every  country  that  is  progressing  needs  a  larger  volume  of 
currency,  Mexico  ought  to  have  absorbed  an  enormous  quantity 
thereof  in  the  last  decade ;  and  yet  since  1895-96  the  excess  of  coinage 
above  exports  has  in  most  of  the  years  been  considerably  below  the 
average  of  $5,000,000,  which  is  the  quantity  absorbed  annually  by 
currency  requirements. 

The  instrumentalities  of  credit  of  every  kind  contribute  power- 
fully to  stimulate  the  rapidity  of  the  monetary  circulation,  and  as 
we  are  still  in  the  infancy  of  credit  there  can  be  no  doubt  that  the 
recent  employment  of  those  instrumentalities  is  what  has  contrib- 
uted to  satisfy  currency  requirements  without  corresponding  addi- 
tions to  the  stock  of  coin. 

For  many  years  to  come  in  Mexico  the  coefficient  of  rapidity  of 
circulation  is  destined  to  increase  without  the  necessity  of  any  special 
stimulus,  and  if  this  is  true  in  any  case  it  folloAVs  that  if  the  cur- 
rency were  to  be  contracted  through  the  suspension  of  the  fi-ee  coinage 
of  silver,  the  use  of  credit  facilities,  which  dispense  with  coin,  would 
play  a  still  larger  role  in  meeting  the  requirements  of  the  nation  in 
this  respect,  however  great  the  annual  increase  of  those  requirements 
might  be. 

Thus  if  the  monetary  reform  in  Mexico  is  to  be  restricted  to  the  sus- 
pension of  the  free  coinage  of  silver,  the  parity  of  international  ex- 
change will  only  be  attained  after  the  lapse  of  many  years,  and  its 
attainment  will  perhaps  produce  greater  evils  than  those  which  it  is 
sought  to  remedy. 

The  danger  would  lie  in  the  lack  of  gold  coins  in  circulation  and  in 
the  possibility  that  an  adverse  trade  balance  might  oblige  the  country 
to  settle  that  balance  with  silver  dollars  taken  from  the  interior  circu- 
lation. 

No  one  questions  that  since  the  years  1891-92  Mexico  has  been 
enabled  to  meet  the  balance  of  her  international  trade,  thanks  to  the 
heavy  volume  of  capital  that  has  come  from  abroad  to  be  invested  in 
undertakings  of  every  kind.  Now,  if  that  influx  of  capital  should  be 
checked,  owing  to  the  slender  confidence  inspired  by  the  success  of  the 
monetary  reform,  the  country's  absolute  lack  of  gold  coins  would 
oblige  it  to  export  the  circulating  silver  coins,  which  would  cause  the 
collapse  of  the  monetary  reform  and  the  loss  of  all  the  advantages 
sought  thereby,  including  the  disassociation  between  the  value  of  sil- 
ver as  a  coin  and  the  value  of  silver  as  a  commodity. 

The  phenomenon  is  not  only  possible  but  probable.  When  a  coun- 
try like  Mexico  undertakes  a  reform  of  such  momentousness  as  the 
stabilization  of  foreign  exchange,  many  persons  cavil  as  to  the  success 
of  the  reform,  and  if  this  alone  is  sufficient  to  alienate  the  confidence 
which  the  country  juay  inspire,  it  will  not  be  surprising  if  capitalists, 
instead  of  hastening  to  invest  their  money  in  Mexico,  will  postpone 
any  operation  of  that  nature  until  a  more  pro])itious  occasion  and 
prospects  become  more  encouraging. 

If  the  parity  of  exchange  is  not  attained  in  a  relatively  siiort  period 
of  time,  if  the  obstacles  of  the  medium  prove  sufficient  to  counteract 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.      377 

the  effects  of  currency  contraction,  and  if  the  vahie  of  the  Mexican 
dollar  is  not  completely  disassociated  from  the  value  of  silver  on  the 
London  market,  it  is  unquestioned  that,  if  in  order  to  settle  our  indebt- 
edness abroad  it  becomes  necessary  to  have  recourse  to  silver  in  circu- 
lation, our  coin  will  again  be  converted  into  a  commodity  and  all  the 
advantages  incidental  to  the  monetary  reform  will  entirely  disappear. 

Stability  of  exchange,  the  prime  object  of  the  reform,  can  only  be 
assured  by  having  gold  in  circulation  or  in  the  banks  as  had  Holland, 
and  seeing  that  there  is  no  gold  either  in  circulation  or  in  the  banks 
it  is  absolutely  indispensable  to  create  a  reserve  fund  in  gold  that  it 
may  perform  exactly  the  same  duties  as  the  gold  stock  of  the  Bank  of 
the  Netherlands. 

A  very  superficial  study  of  the  laws  governing  foreign  exchange  is 
sufficient  to  demonstrate  the  dangers  incidental  to  the  exclusive  circu- 
lation of  silver  coins  and  the  remedies  which  the  gold-reserve  fund 
could  aiford. 

The  supply  and  demand  of  drafts  in  a  country  vary  incessantly 
owing  to  an  infinitude  of  causes  and  with  them  varies  the  rate  of 
exchange. 

AVhen  a  country  possesses  a  stable  monetary  regime,  the  rate  of 
exchange  with  countries  which  have  the  same  coin  in  circulation  is 
subject  to  fluctuations,  but  those  fluctuations  can  not  in  general  wan- 
der far  from  the  parity  of  the  coins,  plus  the  cost  of  transportation 
from  one  country  to  the  other  and  the  coinage  dues. 
.  If  the  rate  of  exchange  falls  to  a  point  at  which  the  metal  can  be 
imported,  the  importation  tends  precisely,  directly  or  indirectly,  to 
cause  a  new  rise  in  the  rate  of  exchange. 

The  direct  action  in  this  respect  is  due  to  the  fact  that  until  the 
comjietition  of  the  precious  metals  imported  ceases  the  supply  of 
drafts  will  be  less  or  the  demand  greater  than  would  have  been  the 
case  if  the  importation  in  question  had  not  occurred,  and  the  indirect 
tendency  flows  from  the  fact  that  the  country's  stock  of  the  precious 
metals  increases  and  an  increase  in  the  quantity  of  coins  in  circula- 
tion tends  to  raise  the  course  of  exchange,  or  at  any  rate  to  check  its 
descent. 

But  if  the  course  of  exchange  rises  to  a  point  at  w^hich  the  precious 
metals  can  be  exported,  the  same  factors  come  into  operation,  but  in 
an  opposite  direction. 

Thus  the  rate  of  exchange,  under  a  firm  and  stable  monetary  regime, 
constantly  fluctuates  between  two  extremes,  though  the  latter  do  not 
depart  far  from  the  parity  of  the  metal's  price. 

Nevertheless,  there  are  moments  of  heavy  decline  or  rise  in  the  rates 
of  exchange,  depending  necessarily  in  part  on  the  variable  amount  of 
the  precious  metals  which  countries  need  for  their  international  com- 
merce and  on  the  variable  amount  of  drafts  that  are  oft'ered  for  sale. 
A  heavy  rise  or  fall  of  this  nature  is  specially  liable  to  occur  between 
countries  whose  currencies  are  not  based  on  the  same  metal. 

When  this  heavy  rise  or  fall  occurs,  the  margin  between  the  price 
of  exchange  and  the  price  of  the  metal  exceeds  the  limit  that  prevails 
under  normal  conditions — that  is  to  say,  it  exceeds  the  expenses  of 
transportation  and  the  cost  of  coinage. 

NoAv  at  such  moments,  independently  of  the  final  balance  of  trade 
between  the  countries  that  carry  on  commercial  exchanges,  heavy 
importations  or  heavy  exportations  of  the  precious  metals  may  occur. 


378  GOLD   STANDARD    IN    INTERNATIONAL    TRADE. 

Now  if  Mexico  carries  out  her  monetary  reform  Avithout  having 
a  stock  of  gold  in  circulation,  she  will  not  be  able  to  meet  a  sudden 
demand  for  the  precious  metals  without  having  recourse  to  silver,  or, 
in  other  words,  Avithout  selling  her  silver  coin  as  a  commodity,  and 
thus  forfeiting  all  the  benefits  of  the  monetary  reform. 

The  creation  of  a  gold  reserve  fund  woidd  constitute  an  admirable 
provisions  for  the  oscillations  of  exchange  and  would  enable  the  coun- 
try to  export  gold  instead  of  silver,  thus  maintaining  the  elasticity  of 
the  currency  and  the  parity  of  foreign  exchange. 

If,  as  I  have  already  shown,  a  prerequisite  for  securing  stability  of 
international  exchange  consists  in  holding  a  greater  or  less  stock  of 
gold  to  provide  against  the  contingency  of  an  adverse  trade  balance, 
and  if  the  effects  of  such  a  balance  are  liable  to  be  felt  at  given  seasons 
of  the  year,  owing  to  the  shocks  affecting  exchange  on  account  of  the 
abundance  or  scarcity  of  drafts  in  the  market — shocks  that  will  be 
much  more  severe  with  an  artificially  enhanced  currency — it  is  un- 
questioned that  the  reserve  fund  in  gold  is  absolutely  essential,  for  it 
will  perform  the  same  functions  as  gold  in  circulation  does  in  the 
countries  Avhere  a  stock  thereof  is  held  either  by  the  banks  or  private 
persons. 

Other  reasons  also  militate  in  favor  of  the  creation  of  the  gold- 
reserve  fund. 

It  is  a  fact  that,  independently  of  the  dangers  incidental  to  the 
contingency  of  an  adverse  trade  balance,  the  effects  of  the  mere  sus- 
pension of  silver  coinage  require  a  great  many  years  to  make  them- 
selves felt,  the  period  depending  upon  the  greater  or  less  currency 
requirements  of  the  nation. 

Now,  with  a  reserve  fund  in  gold  the  effects  of  the  reform  are 
almost  immediate,  the  parity  of  exchange  is  attained  almost  auto- 
maticall}',  and  this,  besides  abridging  the  period  of  transition,  which 
is  fraught  with  dangers  of  everj^  kind,  offers  the  advantage  of  inspir- 
ing full  and  immediate  confidence  in  the  success  of  the  reform. 

If  the  conditions  of  our  trade  balance  are  such  that  it  can  only  be 
settled  through  the  introduction  of  foreign  capital  and  if  that  intro- 
duction depends  on  the  stability  of  our  currency,  every  measure  that 
tends  to  inspire  full  and  absolute  confidence  in  the  success  of  the 
monetary  reform,  and  thus  to  encourage  the  investment  of  foreign 
capital,  is  earnestly  to  be  recommended. 

Those  who  have  combatted  the  creation  of  the.  reserve  fand  see  in 
the  fact  that  stability  of  exchange  may  thereby  be  secured  automatic- 
ally an  argument  in  support  of  their  point  of  view,  for  they  fear  that 
the  rapid  transition  from  present  monetary  conditions  to  the  parity 
that  will  be  established  by  virtue  of  the  ratio  to  be  adopted  between 
gold  and  silver,  Avill  occasion  a  crisis  that  Avill  disturb  not  only  com- 
merce l)ut  the  national  activities  in  general. 

Without  disputing  the  truth  that  nuiy  be  contained  in  such  asser- 
tions, it  must  be  borne  in  mind  that  the  argument  loses  all  its  force 
when  applied  to  a  silver  monometallist  comitry  which  for  so  many 
years  has  been  exposed  to  the  sudden  and  enormous  fluctuations  in  the 
price  of  silver  on  the  London  market.  Seeing  that,  by  reason  of  the 
rise/)r  fall  of  silver  bullion,  Mexico's  exchange  rates  have  suffered 
oscillations  of  more  than  30  per  cent,  upward  or  downward,  within  a 
brief  space  of  time,  can  the  repetition  of  the  phenomenon,  destined 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       379 

probably  to  occur  for  the  last  time,  be  used  as  an  argument  against  the 
creation  of  the  reserve  fund  ? 

The  advantages  inherent  to  the  curtailment  of  the  period  of  transi- 
tion are  so  substantial  that,  in  order  to  attain  thein,  it  would  be  well 
worth  while  to  run  all  the  risks,  real  or  imaginary,  that  could  pos- 
sibly be  involved  in  the  fall  of  exchange  simultaneously  with  the  reali- 
zation of  monetary  reform  to  the  parity  adopted  between  gold  and 
silver. 

The  gold-reserve  fund  is  without  doubt  the  keystone  of  the  stabilit}^ 
of  foreign  exchange  in  Mexico,  and  the  success  which  wdll  be  attained 
through  that  fund  will  be  due  to  the  functions  with  which  it  is  to  be 
invested  and  which  are  to  be  identical  with  the  functions  performed 
by  a  stock  of  gold  in  countries  Avherein  that  metal  circulates. 

Gold  may  either  be  supplied  freely  for  exportation,  as  in  Holland, 
or  at  a  premium  of  so  much  per  cent,  as  in  France,  always  provided 
that  it  may  be  procured  at  the  legal  parity  in  exchange  for  the  circu- 
lating silver  coins  as  soon  as  its  exportation  becomes  necessary.  The 
fund  will  thus  be  the  regulator  of  the  internal  circulation,  destined 
to  impart  to  it  the  necessary  elasticity  and  to  be  the  agency  for  the 
settlement  of  our  foreign  trade. 

If  the  monetary  reform  is  to  be  based  to  an  equal  extent  on  the 
suspension  of  the  free  coinage  of  silver  and  on  the  creation  of  a  reserve 
fund  in  gold,  the  opening  of  the  mints  to  the  free  coinage  of  gold 
follows  as  a  necessary  consequence  of  those  measures. 

When  a  country  suspends  the  coinage  of  a  metal  it  must  adopt  one 
of  the  following  measures:  It  must  either  coin  no  new  money  or  it 
must  coin  money  of  the  depreciated  metal,  receiving  gold  as  a  deposit, 
as  in  India,  or  it  must  coin  gold  money  as  all  other  nations  in  the 
world  have  done. 

In  the  first  case  the  evils  occasioned  by  currency  contraction  are 
greater  than  any  possible  benefits  therefrom. 

No  country  that  is  progressing  and  whose  domestic  and  foreign 
trade  is  constantly  increasing  can  exist  under  such  a  regime.  Scar- 
city value  has  no  assignable  limit ;  and  a  constantly  increasing 
currency  contraction,  coupled  with  the  inability  of  available  currency 
to  meet  the  requirements  of  trade,  would  depress  all  prices  and  occa- 
sion an  unparalleled  crisis. 

It  is  therefore  necessary  to  strike  new  coins  and  to  take  gold  as 
the  basis,  for  undoubtedly  there  can  be  no  better  proof  that  cur- 
rency requirements  demand  additions  to  the  stock  of  coin  than  that 
gold  should  be  offered  for  conversion  into  coin,  in  spite  of  its  excess 
of  value  as  bullion  over  legal  parity. 

Nevertheless  some  persons  prefer  that  silver  should  be  coined,  the 
o:old  being  received  in  deposit,  so  as  to  form  a  special  reserve  fund, 
while  others  would  throw  open  the  mints  to  the  free  coinage  of  gold. 

The  two  measures  in  reality  produce  the  same  result;  but  I  w^ill 
review  the  ariruments  adduced  against  the  free  coinage  of  gold  in 
order  to  demonstrate  that  it  is  preferable  to  the  coinage  of  new  silver 
coins  guaranteed  by  gold  in  deposit. 

AVhen  the  coinage  of  a  metal  is  automatic  and  free  the  coins  that 
may  be  struck  from  that  metal  Avill  only  enter  circulation  Avhen  the 
requirements  thereof  necessitate  them. 

It  is  this  and  this  alone  that  renders  possible  the  concurrent  use  in 


380  GOLD    STANDARD    IN    INTEENATIONAL   TRADE. 

circulation  of  two  kinds  of  coin,  the  value  of  one  of  which  has  been 
enhanced  by  scarcity  while  the  value  of  the  other  is  fixed  by  the 
market  for  the  precious  metals. 

If  both  coins,  the  old  and  the  new,  are  to  enter  jointly  into  circula- 
tion, it  matters  not  whether  the  new  coin  is  struck  from  a  metal  other 
than  the  demonetized  metal  or  from  that  demonetized  metal,  pro- 
vided it  can  be  exchanged  at  the  legal  parity  for  the  metal  constitut- 
ing the  deposit. 

As  the  new  coin  to  be  put  into  circulation  will  be  exportable  and 
the  exportation  will  take  place  when  it  becomes  necessary  to  settle 
abroad  the  balance  of  international  trade,  it  will  be  the  same  whether 
the  coins  sent  abroad  are  withdrawn  directly  from  circulation  for 
that  end  or  whether  the  coins  in  circulation  are  first  exchanged  for 
the  metal  held  in  deposit  aiid  that  metal  is  actually  exported. 

From  the  point  of  view  of  the  mechanism  of  exchange  it  is  there- 
fore absolutely  the  same  whether  gold  is  coined  or  silver  is  coined 
and  gold  deposited  to  be  used  for  exportation  when  the  necessities 
of  exchange  require  the  reduction  of  the  volume  of  coins  in  circulation. 

Yet,  from  the  point  of  view  of  the  internal  market,  exclusively,  it  is 
not  the  same. 

The  opponents  of  the  free  coinage  of  gold  argue  that  if  gold  coins 
enter  into  circidation  they  run  the  risk  of  being  withdrawn  there- 
from for  hoarding  purposes  and  that,  on  the  other  hand,  any  metal 
held  as  a  deposit  can  defend  itself  more  efficaciously  against  the 
exigencies  of  exportation. 

These  reasons  afford  no  solid  argument  against  the  free  coinage  of 
gold,  both  because  the  person  who  is  determined  to  hoard  it  can  just 
as  easily  exchange  the  circulating  coins  for  the  coins  held  in  deposit 
as  he  can  directly  withdraw  coins  from  circulation,  and  because,  if  the 
object  is  to  protect  gold  from  exportation,  the  protection  is  more 
efficacious  when  the  gold  is  held  by  j^rivate  persons  than  when  it 
is  held  in  deposit. 

It  is  plain  that  if  a  new  coin,  by  reason  of  the  metal  of  which  it  is 
made,  is  liable  to  be  hoarded,  it  can  with  equal  ease  be  withdrawn 
from  circulation  as  from  a  fund  whose  object  is  no  other  than  to 
supply  gold  in  exchange  for  silver  coins. 

On  the  other  hand,  coins  constituting  a  deposit,  if  their  object  is 
to  guarantee  otlier  coins  put  into  circulation,  will  be  more  easily 
liable  to  exportation,  for  when  the  necessity  of  exporting  them  arises, 
there  will  be  a  general  rush  to  the  fund  to  secure  them  for  shipment 
abroad. 

The  deposit  will  stand  in  respect  to  the  circulation  in  the  same 
relation  as  the  stock  of  cash  of  a  bank  does  to  the  notes  issued  by  that 
bank;  and  just  as  those  notes,  seeing  that  they  are  not  exportable, 
are,  when  the  necessity  arises  for  making  payments  abroad,  converted 
into  specie  and  that  specie  is  exported,  in  like  manner  the  circulating 
coins,  made  of  the  demonetized  metal,  will  be  presented  for  conver- 
sion into  gold,  which,  as  the  only  exportable  metal,  will  be  sent 
abroad  for  the  settlement  of  the  trade  balance. 

But  if  these  reasons  suffice  to  show  that  the  free  coinage  of  gold  is 
to  be  preferred,  on  the  other  hand,  the  coinage  of  silver  guaranteed 
by  gold  is  liable  to  the  serious  drawback  that  the  capital  represented 
by  the  deposit  becomes  an  accumulation  which  is  idle  and  unpro- 
ductive to  the  nation. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       381 

One  c:in  understand  wliy  a  bank  of  issue  should  put  into  circulation 
notes  payable  on  sight  to  bearer  or  certificates  of  deposit  in  silver  and 
gold,  for  they  are  either  issued  on  a  larger  scale  than  the  stock  of  cash, 
in  which  case  they  afford  substantial  profits,  or  the}'^  are  issued  on  an 
even  scale,  so  that  the  engraved  note  or  certificate  at  least  implies  a 
saving.  But  there  is  no  object  in  the.  issuance  of  coins  made  of  one 
metal  and  the  holding  in  deposit,  as  a  guaranty  therefor,  of  a  like  sum 
in  coins  made  of  another  metal.  The  capital  which  that  deposit  rep- 
resents is  a  capital  witlulrawn  from  the  country's  general  wealth  and 
which  fails  to  perform  the  })roper  functions  of  capital. 

Unless,  therefore,  it  is  desired  to  burden  the  country  with  an  idle 
accumulation  eqiuil  to  the  increase  of  the  currency,  it  is  indispensable 
to  throw^  open  the  mints  to  the  free  coinage  of  gold. 

The  free  coinage  of  gold  offers,  moreover,  the  advantage  that  in  a 
gradual  and  progressive  manner  it  will  attract  gold  into  circulation, 
thereby  strengthening  the  currency  and  assuring  the  evolution  from 
silver  monometallism  to  gold  monometallism.  It  is  true  that  gold  will 
only  enter  into  circulation  when  currency  requirements  irresistibly 
attract  it,  but  its  presentation  for  coinage  will  afford  the  assurance 
that  it  will  be  retained  in  the  country  as  long  as  the  circulation  con- 
tinues in  a  normal  state. 

I  have  completed  the  exposition  of  the  reasons  for  the  opinions 
which  I  have  inaintained  at  the  sessions  of  the  fifth  subcommittee.  I 
regret  that  I  have  not  had  time  to  outline  the  functions  which  from 
my  point  of  view  the  gold-reserve  fund  ought  to  perform.  But  I 
was  unable  to  find  time,  and  my  only  object  in  drawing  up  the  fore- 
going memoir  was  to  demonstrate  the  imperative  necessity  for  the 
adoption  of  the  three  measures  that  must  constitute  the  foundation 
of  monetary  reform.. 

Joaquin  D.  Casasus. 

I^Iexico,  Novemher  16, 1903. 


Annex  No.  8.— Opinion  of  the  Commissioners  Lie.  Joaquin  D.  Casasus, 
Enrique  C.  Creel,  Manuel  Fernandez  Leal,  Josfi  de  Lanuero  y  Cos  and 
Genaro  Raigosa. 

The  undersigned  regret  that  they  have  been  unable  to  reach  an 
agreement  with  the  majority  of  the  members  of  the  fifth  subcom- 
mittee in  regard  to  the  necessity  of  the  immediate  formation  of  a 
reserve  fund  in  gold  and  in  regard  to  the  method  of  organizing  that 
fund.  They  would  have  been  satisfied  with  a  special  mention  in  the 
report  of  the  fifth  subcommittee  of  the  different  opinions  which  each 
one  of  its  members  has  expressed ;  but  haAing  been  invited  to  present 
the  ground  of  their  views  and  to  expound  in  a  concrete  manner  the 
principles  which  they  consider  ought  to  serve  as  the  basis  for  the 
monetary  reform,  they  could  not  withhold  compliance  with  that  invi- 
tation, were  it  only  as  a  token  of  the  profound  respect  which  they 
entertain  and  have  always  entertained  for  the  opposite  opinions  held 
and  maintained  by  the  majority  of  the  fifth  subconmiittee. 

The  undersigned  have  held  that  the  formation  of  a  reserve  fund 
in  gold  is  the  indispensable  basis  of  the  monetary  reform  and  that 
the  fund  in  question  ought  to  be  established  immediately.  They 
have  defended  their  view^  with  scientific  reasons  and  with  reasons  of 
public  expediency. 


382       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

The  scientific  reasons  are  as  follows : 

I.  If  the  parity  established  by  law  between  gold  and  silver  is  to 
be  brought  about  by  the  mere  suspension  of  the  free  coinage  of  the 
white  metal,  it  can  only  be  attained  by  the  rarefaction  of  the  mone- 
tary circulation;  and  that  rarefaction,  besides  being  difficult  of 
realization,  engenders  evils  greater  than  those  which  it  is  intended 
to  remedy. 

II.  Though  the  parit}^  established  by  law  between  gold  and  silver 
can  in  the  long  run  be  attained  by  the  rarefaction  of  the  monetary 
circulation,  it  affords  no  guaranty  of  stability  in  case  an  unfavorable 
commercial  balance  necessitates  the  exportation  of  metallic  specie. 

III.  A  stock  of  gold,  whether  in  circulation  or  held  in  deposit, 
owing  to  the  fact  that  it  consists  of  exportable  coins,  is  the  only 
guaranty  for  the  stability  and  safe  operation  of  a  monetary  regime 
based  on  the  artificial  elevation  of  the  value  of  a  coin  due  to  the 
suspension  of  free  coinage. 

The  reasons  of  public  expediency  are  as  follows: 

I.  The  success  of  any  monetary  reform  depends  on  the  confidence 
with  Avhich  the  public  receives  the  new  coins  and  the  certitude  which 
it  entertains  as  to  the  stability  of  their  value. 

II.  The  adoption  of  successive  measures,  intended  to  be  applied 
in  turn,  in  case  each  proves  insufficient  for  the  attainment  of  the 
desired  object,  destroys  in  advance  the  confidence  that  is  indispensable 
to  the  success  of  the  reform. 

III.  If  faith  is  entertained  in  the  efficacy  of  the  various  measures 
that  aim  at  assuring  the  success  of  the  monetary  reform,  the  most 
elementary  prudence  counsels  their  simultaneous  adoption  in  order 
to  increase  the  probabilities  of  that  success. 

As  the  ol)ject  of  any  monetary  reform  based  on  the  -suspension 
of  the  free  coinage  of  silver  is  to  disassociate  the  value  of  the  coins 
made  of  that  metal  from  the  price  which  it  commands  in  the  world's 
markets,  it  is  unquestioned  that  the  fundamental  object  is  to  advance 
the  gold  value  of  silver  money. 

The  suspension  of  the  free  coinage  of  silver  money  is  in  principle 
destined  to  realize  that  object,  for  as  all  nations,  in  proportion  as  the 
volume  of  their  commercial  transactions  expand,  stand  in  need  of 
greater  quantities  of  cash,  it  is  plain  that  if  the  additional  supply  is 
not  forthcoming  the  value  of  the  coins  in  circulation  will  be  enhanced. 

Such  a  result,  howeA^er,  can  not  be  attained  save  through  the  lajDse 
of  time,  and  the  period  will  be  more  or  less  long,  depending  on  the 
greater  or  less  intensity  with  which  the  country  experiences  the  need 
of  an  increased  volume  of  monetary  circulation  and  on  the  degree 
in  which  a  higher  coefficient  of  rajiidity  in  circulation  may  neutra- 
lize the  effects  of  the  rarefaction  of  the  currency. 

Nations  which  are  on  the  full  tide  of  progress  and  development 
need  daily  an  increasing  quantity  of  cash  for  their  transactions; 
but  the  volume  of  the  cash  additions  will  depend  on  the  total  volume 
of  their  commerce  and  on  the  im])()rtance  of  the  role,  for  the  )jurposes 
of  circulation,  played  by  the  instrumentalities  of  credit,  which  render 
more  and  more  unnecessary  the  em})loyment  of  coin. 

In  countries  like  Mexico,  in  sjiite  of  the  enormous  j^rogress  Avhich 
it  has  achieved  and  is  achieving  day  by  day,  the  necessity  of  increased 
quantities  of  coin  in  circulation  is  but  little  felt,  and  owing  to  the 
fact  that  the  countr}^  is  only  just  beginning  to  make  an  intelligent 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       383 

use  of  the  ins(niiiientalities  of  credit  the  increased  demand  is  likely 
t()  be  oti'set  for  a  considerable  time  to  come  by  a  higher  coeiRcient 
of  rapidity  in  the  movements  of  the  monetary  circnlation. 

The  snspension  of  the  free  coinage  of  silver  would  encounter  diffi- 
culties in  producing  its  natural  effects  in  Mexico,  and  even  if  it  pro- 
duced them  it  would  only  be  after  the  lapse  of  a  great  many  years. 

Granting,  however,  that  the  rarefaction  or  contraction  of  the  cir- 
culation could  be  bi-ought  about  in  a  relatively  brief  period  of  time, 
what  would  have  to  be  the  importance  of  that  contraction  to  enable 
it  alone  to  maintain  the  price  of  silver  coins  at  a  margin  of  from  30 
to  50  per  cent  above  their  bullion  value?  What  would  be  the  effects 
of  that  contraction? 

It  would  be  difficult  to  lay  down  a  law  which  should  establish  a 
connection  between  the  increase  in  value  of  a  circulating  medium 
and  the  quantity  of  that  medium  ;  but  it  may  be  said,  with  afair  prob- 
abilit}'  of  accuracy,  that  if  the  increased  value  of  the  medium  is  due 
to  the  curtailment  of  the  quantity  the  decrease  in  the  stock  of  coin 
will  be  proportionate  to  the  enhancement  in  its  value. 

In  order,  therefore,  to  make  silver  coins  Avorth  from  30  to  50  per 
cent  above  their  bullion  value,  it  Avould  be  approximately  necessary 
in  order  to  attain  that  enhancement  to  curtail  the  circulation  in  pro- 
portion to  the  total  volume  of  business  by  from  30  to  50  per  cent. 

Now  the  disastrous  effect  of  so  considerable  a  contraction  of  the 
monetary  circulation  are  well  known  to  everyone. 

As  prices  do  not  depend  only  on  the  quantity  of  commodities 
offered,  but  on  the  quantity  of  coin  that  can  be  given  in  exchange  for 
those  commodities,  on  the  hypothesis  that  jjroduetion  continues 
unchanged  and  that  the  quantity  of  coin  is  reduced  by  one-half, 
prices  would  undergo  a  like  reduction  and  in  their  decline  w^ould 
occasion  the  ruin  of  producers.  The  transactions  which  render  indis- 
pensable the  circulation  of  wealth  would  also  be  paralyzed,  for,  inas- 
much as  the  rate  of  interest  on  money  is  intimately  bound  up  with 
and  dependent  upon  the  quantity  of  coin  in  circulation,  it  follows  that 
that  rate  rises  in  proportion  as  the  circulation  of  coin  decreases.  A 
high  rate  of  interest  on  capital  is  an  invincible  obstacle  to  the  natural 
development  of  wealth,  for  while  it  permits  the  investment  of  capital 
in  businesses  that  are  exceptionally  remunerative,  it  destroys  capital 
already  invested  in  productive  enterprises  and  arrests  the  progressive 
march  of  nations. 

If  the  parity  between  gold  and  silver,  created  by  law,  has  to  be 
attained  at  such  a  price,  it  would  be  better  to  go  without  it,  for  the 
benefits  which  the  fixity  of  exchange  might  bring  along  with  it  would 
be  more  than  offset  l)v  the  evils  that  would  flow  from  the  decline  of 
]irices,  which  would  be  proportional  to  the  curtailment  of  the  circu- 
lating medium,  and  from  the  stiffening  of  the  rate  of  interest  which 
would  be  connnensurate  with  the  effects  of  the  contraction  of  the 
monetary  circulation. 

The  disastrous  effects  of  the  curtailment  of  the  quantity  of  coin  in 
circulation  might  be  borne  by  a  prosperous  country  and  there  are 
persons  who  believe  that  they  would  be  compensated  by  the  benefits 
which  the  stabilization  of  exchange  would  bring  in  its  train. 

Granting  the  truth  of  this  assertion,  it  is  nevertheless  demonstrable 
that  the  benefits  of  fixity  of  exchange  can  not  be  stable  and  lasting 
if,  as  a  consequence  of  the  monetary  reform  itself,  the  foreign  caj)ital 


384       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

that  comes  to  the  country  in  quest  of  investment  is  diverted  to  other 
lands  or  ceases  to  be  sufficient  to  make  good  the  adverse  balance  of 
our  foreign  trade. 

It  is  a  fact  that  no  one  will  dispute  that  in  recent  years  Mexico 
has  had  to  rel}^  on  the  foreign  capital  coming  to  the  country  for 
investment  to  compensate  the  adverse  balance  of  her  trade. 

It  follows  that  if,  as  a  consequence  of  the  monetary  reform  and 
until  such  time  as  success  shall  crown  the  efforts  of  our  Government, 
foreign  capital  refrains  from  entering  Mexico  for  investment,  it  will 
be  necessary  to  settle  the  trade  balance  by  means  of  the  circulating 
medium. 

Now,  will  it  be  possible  to  maintain  the  disassociation  between  the 
value  of  the  silver  coins  and  the  price  of  silver  bullion  on  the  London 
market  in  case  said  coins  have  to  be  exported  to  foreign  countries? 

It  is  undoubted  that  nations  can  not  continue  indefinitely  to  pro- 
duce less  than  the}'^  consume,  and  that  the  necessity  of  exporting  the 
circulating  medium  is  the  only  brake  capable  of  .checking  the  ten- 
dency of  nations  to  buy  more  than  they  can  sell.  But  until  that  pro- 
pensity is  corrected,  until  that  evil  is  restricted,  until  international 
commerce  is  reduced  to  its  just  and  proper  proportions,  it  is  necessary 
to  pay  foreign  nations  for  the  articles  bought  from  them,  and  there 
is  no  other  way  to  pay  them  than  to  part  with  the  circulating  medium. 

The  country  which  seeks  to  effect  its  monetary  reform  merely  by 
suspending  the  free  coinage  of  silver  will  not  succeed  in  the  attempt 
and  the  failure  will  be  hopeless  if,  during  the  period  in  which  the 
value  of  the  silver  coins  is  being  artificially  enhanced,  it  should  prove 
necessary,  in  order  to  settle  an  adverse  trade  balance,  to  export  the 
circulating  medium. 

A  stock  of  gold,  either  in  circulation,  in  the  coffers  of  the  banks,  or  in 
the  form  of  reserved  funds  specially  constituted,  is  the  only  guar- 
antee for  the  easy  operation  of  a  monetary  system  based  on  the  suspen- 
sion of  the  free  coinage  of  silver. 

In  point  of  fact,  in  the  event  of  an  adverse  trade  balance,  when 
necessity  obliges  a  nation  to  export  a  portion  of  its  circulating 
medium,  a  stock  or  reserve  of  gold  obviates  the  exportation  of  the  coin 
whose  value  has  been  artificially  raised,  by  furnishing  in  its  stead  a 
metal  of  full  value  and  unrestricted  international  acceptance. 

In  the  natural  and  normal  operation  of  economic  phenomena,  it  may 
be  said  that  any  country,  when  it  has  realized  all  its  transactions  at 
home  and  abroad,  has  thereby  paid  all  its  debts  and  has  added  to  its 
wealth  by  increasing  proportionately  its  monetary  circulation. 

As  the  development  of  wealtli  docs  not  always  conform  to  the  laws 
that  should  control  it,  it  often  happens  that  some  countries  accumulate 
wealth  mor-e  rapidly  than  others,  always  securing  a  favorable  trade 
balance,  while  other  nations  can  not  produce  enough  to  pay  for  what 
they  consume,  and  settle  their  trade  balances  either  through  increasinl 
investments  of  foreign  capital  or  by  sending  their  coin  abroad,  thus 
curtailing  the  circulating  medium. 

This  phenomenon  can  not  go  on  indefinitely.  The  requirements  of 
the  circulation  are  so  pressing  that  they  lead  to  the  restoration  of  the 
balance  of  international  trade. 

Under  a  perfect  monetary  regime  these  effects  are  of  relatively  short 
duration,  for  the  precious  metals,  like  liquids,  always  seek  their  own 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       885 

level  and  How  (o  points  ^vllel•e  lliey  tind  the  most  remunerative 
employment.  IJut  when  monetary  systems  are  based  on  more  or  less 
in«i-enions  nrtiCicial  devices  that  law  does  not  ajjply,  and  the  duration 
of  the  efl'ects  in  (juestion  is  liable  to  b(>  umhdy  ])rolon<>ed. 

A  stock  of  ;L>()ld,  or  a  reserve  fund  in  jH'old,  not  only  enables  a  nation 
to  settle  its  trade  balance  in  an  exportable  coin,  but,  inasmuch  as  it 
obviates  the  impairment  of  the  l)asis  of  the  monetary  system,  places  a 
nation  on  the  same  footing  as  if  it  were  under  a  jierfect  mcmetary 
regime. 

Inasmuch  as  gold,  when  constituting  a  rescrA'e  finid,  can  only  be 
(wported  by  the  Avithdi-awal  of  an  e<]uival(Mit  (juantity  of  silver  coin 
from  circulation,  its  exj)ortation  j>r<)duces  the  natural  ett'ects  of  a  con- 
traction of  th(>  monetary  circulation,  and  therefore  tends  to  preA'ent 
the  recurrence  of  adverse  balances  in  international  trade;  and,  as 
concurrently  with  the  expoi-tation  the  monetary  system  continues  to 
operate  freely,  without  impairment  of  the  artificial  device  whereby 
the  higher  value  ascribed  to  the  silver  coins  in  circulation  is  main- 
tained, the  requirements  of  that  circulation  Avill  cause  gold  to  return 
to  the  country,  restoring  the  disturbed  equilil)rium  of  prices,  and  i^ro- 
ducing  the  necessary  elasticity  which  every  currency,  in  order  to  l)e 
thoroughly  efficacious,  ought  always  to  possess. 

lender  tliis  regime  there  can  be  but  one  danger,  viz.,  that  the  adverse 
trade  balance  might  exceed  the  amount  of  the  reserve  fund  in  gold. 
The  danger  would  in  any  case  exist.  But  it  would  be  remote  if  the 
reserve  fund  were  to  attain  30  per  cent  of  the  monetary  circulation, 
for  a  ti'ade  balance  could  not  exceed  that  proportion  without  causing 
not  merely  the  collapse  of  a  monetary  system,  but  the  country's  ruin. 

In  point  of  fact  it  is  hard  to  conceive  how  a  nation  could  be  under 
the  necessity  of  exporting  30  per  cent  of  the  total  amount  of  its  coin 
in  circulation  in  order  to  settle  the  balance  of  its  international  indebt- 
edness, and  if  such  a  contingency,  which  is  possible  though  not  proba- 
ble, were  to  arise,  it  would  reveal  a  situation  so  critical  that  it  could 
only  with  extreme  difficulty  be  modified  or  remedied. 

A  gold  reserve  would,  therefore,  practically  constitute  not  only  a 
guaranty  fund,  which  would  assure  the  fixity  of  international  ex- 
change and  the  stable  operation  of  the  monetary  system,  but  would 
also  provide  for  the  payment,  in  exportable  coin,  of  the  maximum 
margin  which  an  international  trade  balance  is  capable  of  occasioning. 

To  sum  up,  it  may  be  said  that  it  is  absolutely  indis]iensable  for  the 
success  of  a  monetary  reform  based  on  the  suspension  of  the  free  coin- 
age of  silver  that  a  reserve  fund  in  gold  be  created,  for  though  the 
parity  established  between  gold  and  silver  maj^  be  attained  by  the  con- 
traction of  the  monetary  circulation,  that  contraction  would  be  rather 
hurtful  than  beneficial :  and  because,  even  though  at  a  givat  sacrifice, 
the  parity  were  brought  about,  the  new  regime  would  afford  no  guar- 
anty of  stability  in  case  an  adverse  trade  balance  Avere  to  necessitate 
the  exportation  of  the  circulating  silver  coins. 

Independently  of  the  scientific  reasons  that  have  just  been  set  forth, 
it  is  indispensable  to  take  into  consideration  other  reasons  based  on 
public  expediency. 

The  success  of  any  monetary  reform  must  necessarily  be  based  on 
the  confidence  which  the  public  may  accord  to  the  new  currency  and 
the  certitude  which  it  may  entertain  as  to  the  stability  of  its  value, 
S.  Doc.  128,  58-3 25 


886       GOLD  STANDAED  IN  INTERNATIONAL  TRADE. 

It  is  impossible  to  understand  how  these  conditions  could  be  met  by 
the  measures  which  the  majority  of  the  fifth  subcommittee  have 
sought  to  recommend  to  the  Government,  seeing  that  the  possibility 
that  the  parity,  established  by  law  between  gold  and  silver,  will  not  l)e 
secured,  is  clearly  hinted  at  and  the  subsidiary  steps  that  will  have  to 
be  taken  in  such  an  event  are  outlined.  If  the  majority  of  the  fifth 
subcommittee  declare  that  in  case  the  legal  parity  l)etween  gold  and 
silver  proves  slow  of  realization,  the  surest  method  to  bring  about  that 
parity  will  be  to  add  a  sufficient  sum  to  the  gold  reserve  to  influence 
the  home  market  in  the  direction  of  imparting  the  desired  stability  to 
the  rate  of  exchange,  undoubtedly  that  majority  apprehend,  and  with 
reason,  that  the  mere  suspension  of  the  free  coinage  of  silver  will  not 
suffice  for  the  desired  object. 

Now,  is  this  declaration  not  calculated  to  destroy  in  advance  the  con- 
fidence with  which  the  public  ought  to  be  inspired  as  to  the  probable 
success  of  the  monetary  reform  ? 

Public  confidence,  though  often  acting  under  the  influence  of  the 
unreflecting  impulses  of  the  multitude,  demands,  in  this  case,  actual 
facts  that  will  at  least  guarantee  the  probability  of  success. 

Now,  that  confidence  can  not  be  felt  l)y  the  nation  if  the  persons 
invited  to  advise  the  Government  as  to  the  best  policy  to  be  pursued  in 
this  matter  not  only  express  the  fear  that  the  attainment  of  stability 
and  fixity  of  international  exchange  may  be  unduly  delayed,  but 
declare  that  in  the  event  of  such  a  contingency  there  are  other  meas- 
ures in  store  of  undoubted  efficacy  which  will  have  the  result  of 
assuring  the  success  of  the  monetary  reform. 

Precisely  for  these  reasons  the  midersigned  believe  that  if  absolute 
and  complete  faith  is  placed  in  the  efficacy  of  the  projected  measures 
to  bring  about,  if  applied  successively,  the  legal  parity  between  gold 
and  silver,  then  those  measures  ought  to  be  adopted  simultaneously,  in 
order  that  the  period  of  transition  may  be  as  short  as  possible  and  that 
the  results  may  at  once  be  satisfactory  and  definite. 

The  difference  of  opinion  between  the  majority  and  the  minority  of 
the  fifth  subcommittee  is  insignificant.  The  majority  hold  that  a 
reserve  fund  in  gold  is  not  an  indispensable  factor  in  bringing  about 
the  parity  which  the  law  may  establish  between  gold  and  silver. 
They  are  indeed  convinced  that  it  affords  the  best  and  most  appropri- 
ate way  to  assure  the  success  of  the  monetary  reform.  But  they 
desire  experimentally  to  see  whether  it  is  possible  to  attain  the  same 
results  by  the  mere  suspension  of  the  free  coinage  of  silver  and  they 
recommend  that  recourse  be  had  to  the  gold  reserve  in  the  event  of  the 
non-realization  of  the  cherished  hopes  of  success. 

These  tactics,  which  in  any  other  case  and  in  regard  to  measures  of 
any  other  nature  would  be  expedient  and  even  commendable,  do  not 
deserve  to  be  taken  into  consideration  when  monetary  reform  is  the 
stake;  because  the  fundamental  object  to  be  kept  in  view  is  to  con- 
vince the  pul)lic  that  the  new  coin,  destined  to  replace  the  old  one, 
will  in  a  very  brief  period  possess  the  gold  value  which  the  law  as- 
cribes to  it,  and  that  that  value  will  constitute  the  sole  and  indestruc- 
tible basis  of  the  stability  of  international  exchange. 

Thus  the  majority  of  the  fifth  subcommittee  do  not  question  the 
efficacy  of  the  gold  reserve.  They  merely  differ  as  to  the  opportune 
moment  for  its  creation;  and  as  in  this  respect  all  the  reasons  that  go 
to  prove  the  necessity  of  its  immediate  formation  have  been  adduced, 


GOLD    STANDAKD    TN    TNTKKNATIONAL    TRADE.  387 

it  ma.y  be  held  to  have  been  proved  beycnid  the  possibility  of  doubt 
that  the  reserve  fund  is  as  indispensable  a  feature  of  monetary  reform 
as  the  susj^ension  of  the  free  coinage  of  silver  itself. 

The  necessity  of  the  immediate  creation  of  the  gold  reserve  fund 
being  thus  established,  it  is  necessary  to  describe,  even  though  sum- 
marily, the  functions  which  the  fund  in  question  is  to  perform. 

The  members  of  the  minority  of  the  fifth  subcommittee  held  in  this 
respect  opinions  which,  though  essentially  similar,  dift'ered  as  to  cer- 
tain relatively  important  details.  Some  of  the  minority  members 
thought  that,  to  avoid  interference  with  operations  of  exchange, 
which  are  and  ought  to  be  a  specialty  of  the  banks,  the  functions  of 
the  fund  should  be  confined  to  supplying  gold  for  export,  when,  after 
offsetting  the  nation's  credit  and  debit,  it  should  prove  necessary  to 
make  gold  pa3aiients  abroad. 

This  system  was  calcidated  to  simplify  greatl}^  the  functions  of  the 
reserve  fund  and  to  render  its  administration  most  eas}^;  but  inas- 
much as,  from  a  strictly  scientific  point  of  ^iew,  to  supply  gold  for 
exportation  is  exactly  the  same  as  to  issue  a  draft  payable  abroad  in 
gold  receiving  silver  money  in  exchange,  all  the  members  were  con- 
strained to  admit  that  the  preferential  object  of  the  administration 
of  the  reserve  fund  might  be  the  sale  of  letters  of  exchange  against 
the  fund  itself,  payable  abroad  if  part  of  the  fund  is  to  be  deposited 
a  Inroad,  and  another  part,  though  a  much  smaller  one,  at  home. 

On  the  other  hand,  the  sale  of  exchange  may  be  restricted  to  abso- 
lute cases  of  necessity,  and  for  this  purpose  it  would  be  sufficient  to 
authorize  the  collection  of  a  commission  of  2  per  cent  above  the 
nuirket  price. 

The  undersigned  therefore  think  that  the  reserve  fund  might,  dur- 
ing the  period  of  transition,  sell  foreign  exchange  at  rates  that  would 
aid  the  gradual  rise  in  the  gold  value  of  the  silver  currency,  until 

attaining  the  legal  parity  plus  2  per  cent,  or  an  exchange  rate  of 

on  New  York  and  equivalent  rates  on  other  foreign  markets,  and, 
after  the  lapse  of  the  transitional  period,  maintain  the  stability  of 
international  exchange,  with  a  margin  of  2  ]3er  cent,  by  selling  drafts 
on  foreign  countries  whenever  it  should  prove  necessary  to  restore 
the  legal  parity. 

The  functions  of  the  reserve  fund  thus  defined  would  be  directed 
to  facilitating  the  attainment  of  the  legal  j^arity  between  gold  and  sil- 
ver and  to  maintaining  that  parity  after  the  transitional  period, 
whenever  the  transactions  in  international  exchange  might  cause  a 
divergence  between  the  value  of  the  circulating  medium  and  the  gold 
value  ascribed  to  it  by  law. 

Considering  the  functions  wliich  the  minority  of  the  fifth  subcom- 
mittee have  in  view  for  the  i*eserve  fund,  it  Avas  to  be  expected  that 
they  would  not  share  the  opinions  held  by  the  majority  of  said  sub- 
conniiittee  as  to  tlie  minimum  amount  with  which  it  is  to  be  started 
and  the  resources  that  are  to  be  devoted  to  its  formation. 

If  the  prime  object  of  the  reserv^e  fund  is  to  be  able  to  settle  trade 
balances  in  gold,  in  order  to  assure  the  perfect  operation  of  the  mone- 
tary system,  it  is  indispensable  that  the  fund  in  question  should 
amount  to  '50  per  cent  of  the  value  of  the  new  coins  to  be  issued  or 
their  equivalent  in  gold. 

In  point  of  fact,  seeing  that  the  fear  of  the  occurrence  of  an  adverse 
trade  balance  may  be  realized  at  any  time  after  the  promulgation  of 


388       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

the  monetary  reform,  it  is  necessary  that  the  Government  shonld  be 
ready  to  ward  off  the  harm  which  the  phenomenon  in  question  might 
occasion,  and  that  to  that  end  the  fund  should  be  of  sufficient  magni- 
tude to  enable  the  balance  of  our  international  trade  to  be  settled  in 
i2"old  by  means  of  drafts  on  foreii>n  countries. 

It  is  undoubted  that  there  are  no  reasons  A^hich  directly  justify  the 
choice  of  30  per  cent  rather  than  of  25  per  cent  of  the  total  coin  in 
circulation  as  the  amount  of  the  reserve  fund;  but,  as  has  been 
already  said,  the  undersigned  sought  to  fix  a  margin,  an  excessive 
margin,  beyond  which  the  curtailment  of  the  circulating  medium 
could  not  go  without  occasioning,  at  least  in  all  probal^ility,  a  crisis 
so  profound  as  to  compromise  the  economic  future  of  the  nation. 

In  view  of  the  proportions  which  we  think  the  reserve  fund  ought 
to  have,  it  will  be  necessary,  with  a  view  to  its  formation,  to  have 
recourse  to  extraordinary  resources  and  to  other  resources  that  may 
be  characterized  as  normal  and  indefinitely  collectible. 

The  reserve  fmid  will  therefore  be  formed: 

I.  From  extraordinary  resources,  whether  they  be  the  nation's 
treasury  reserves  or  the  proceeds  of  a  loan  of  a  provisional  nature. 

II.  From  the  ])rofits  that  may  be  secured  from  the  mintage  of  the 
new  silver  coin. 

III.  From  the  interest  on  funds  deposited  in  banks  either  in  the 
country  or  abroad. 

IV.  From  3  per  cent  of  the  iuiport  duties  which  will  have  to  be 
paid  in  gold  at  the  parity  to  be  determined  by  law,  said  3  per  cent 
being  utilized  for  the  redemption  of  the  debt  contracted  in  case  it  be 
necessary  to  have  recourse  to  a  loan  for  the  formation  of  the  reserve 
fund. 

The  only  point  in  regard  to  the  reserve  fund  as  to  which  the  major- 
ity and  the  minority  of  the  fifth  subcommittee  do  not  differ  is  that 
which  concerns  its  administration,  for  all  are  agreed  that  it  should  be 
kept  se^Darate  from  all  the  properties  that  constitute  the  federal  assets 
and  that  it  should  be  administered  by  a  commission  which,  though 
presided  over  \)y  the  minister  of  finance  and  public  credit,  will  be  com- 
posed of  private  individuals  to  be  selected  by  the  Government  from 
among  persons  of  prominence  in  the  commercial  and  banking  Avorld. 

With  a  view  to  presenting  in  a  concrete  form  all  the  oijinions  held 
by  the  undersigned  in  regard  to  the  reserve  fund,  its  functions,  forma- 
tion, administration,  etc.,  the  following  propositions  have  been  drawn 

"P-  .  .       .         , 

I.  The  creation  of  a  reserve  fund  is  considered  by  the  minority  of 

the  fifth  subcommittee  as  necessary  and  indispensable  for  the  realiza- 
tion of  the  monetary  reform  with  probabilities  of  success. 

II.  The  reserve  fund  will  perform  the  following  functions: 

{{/)  It  will,  during  the  period  of  transition,  aid  the  gradual  rise  of 
the  gold  value  of  the  silver  coins  through  the  sale  of  drafts  on  foreign 
])ai-ts  at  rates  that  shall  be  conducive  to  that  end,  until  the  attainment 

of  the  parity  plus  2  per  cent,  or  an  exchange  rate  of  on  New 

York  and  equivalent  exchange  rates  on  other  foreign  countries. 

{h)  When  the  period  of  transition  shall  have  passed,  it  will  aid  the 
maintenance  of  stable  international  exchange  rates  at  a  margin  of  2 
per  cent.  As  long  as  drafts  are  being  sold  in  the  City  of  Mexico  on 
New  '^^)rk  at  rates  that  are  undei"  2  jier  cent,  foreign  exchange  will 
not  be  sold  out  of  the  reserve  fund;  but  when  that  rate  has  been 


GOLD    STANDARD    TN    TISTTERT^ATIONAL   TRADE.  389 

jiassed,  such  qnaiitily  ot"  I'orcioii  (>\cli:m^t'  w  ill  he  sold  as  shall,  in  the 
opinioii  of  the  niaiiat>iiii2,'  coininittcc  of  the  I'liiid,  suffice  lo  reestablish 
the  lejxal  parity. 

III.  The  amount  of  the  reserve  fund  is  fixed  at  30  per  cent  of  the 
A'alue  of  the  new  coins  to  be  issued  or  tlieir  equivalent  in  gold. 

IV.  The  reserve  fund  is  to  be  created  i)artly  in  the  country  and 
partly  abroad. 

V.  The  reserve  fund  will  be  formed: 

{</)  From  extraordinary  resources,  Avhether  they  be  the  nation's 
treasury  reserves  or  the  |)roceeds  of  a  loan  of  a  ])r()visional  nature. 

{b)  From  the  i)r()lits  that  may  be  secured  from  the  mintage  of  the 
new  silver  coin. 

(c)  From  the  interest  on  funds  deposited  in  banks  either  in  the 
country  or  abroad.  ^ 

((f)  From  3  per  cent  of  the  im})ort  duties,  which  will  have  to  be 
j)aid  in  gold,  at  the  parity  to  be  determined  by  law,  said  3  per  cent 
being  utilized  for  the  redemption  of  the  debt  contracted,  in  case  it  be 
necessary  to  ha^e  recourse  to  a  loan  for  the  formation  of  the  reserve 
fund. 

VI.  The  reserve  fund  A\ill  be  completely  disassociated  from  all 
other  funds  of  the  national  treasury;  it  will  be  devoted  solely  and 
exclusively  to  its  object,  and  in  no  case  may  the  Government  make 
use  of  it  for  other  liabilities  of  the  national  treasury,  whether  ordinary 
or  extraordinary. 

VII.  The  reserve  fund  will  be  administered  by  a  commission 
appointed  by  the  Government  and  presided  over  by  the  minister  of 
finance  and  public  credit. 

VIII.  The  amount  necessary  for  the  formation  of  the  reserve  fund 
will  be  gradually  accumulated  during  the  period  of  transition  and 
will  be  completed  when  that  period  shall  have  terminated  and  the  nor- 
mal functions  of  the  reserve  fund  in  the  maintenance  of  legal  parity 
shall  commence. 

IX.  In  no  case  shall  the  period  of  transition  exceed  three  years,  and 
during  that  period  the  reserve  fund  will  be  operated  so  as  to  imj^art  in 
a  stable  manner  to  the  silver  coins  a  fixed  value  in  gold  according  to 
the  ratio  adopted. 

Before  concluding,  the  undersigned  wou.ld  dr:nv  attention  to  an 
important  point  as  to  which  they  differ  from  the  majority  of  the 
fifth  sul)committee,  viz.,  as  to  the  free  coinage  of  gold. 

In  view  of  the  principles  maintained  by  the  majority  of  the  fifth 
subcommittee,  according  to  which  the  legal  ])arity  between  gold  and 
silver  is  not  to  l)e  attained  immediately,  even  though  it  should  prove 
possible  so  to  attain  it,  it  can  be  readily  understood  that  they  do  not 
consider  the  opening  of  the  mints  to  the  free  coinage  of  gold  as  con- 
ducive to  the  country's  interests. 

In  point  of  fact,  if  the  parity  between  gold  and  silver,  according  to 
the  ratio  to  be  established  by  law,  is  to  be  attained  by  a  contraction  of 
the  monetary  circulation,  it  is  undoubted  that  the  new  gold  coin 
which  would  meet  the  j)ressing  needs  of  that  cii-culation  would  liam- 
j)er  or  defer  the  efi'ects  sought  to  be  brought  about  by  such  contraction 
of  the  cii'culatiug  medium. 

It  can  l)e  readily  understood  that  the  undersigned  hold  a  diametric- 
all}'  opposite  opinion,  seeing  that  according  to  tlieir  point  of  view 
every  effort  should  be  made  to  bring  about  parity  between  the  new  sil- 


390  GOLD    STANDARD   IN    INTERNATIONAL    TRADE. 

ver  and  gold  coins  at  the  earliest  possible  moment ;  and,  further,  seeing 
that  they  do  not  build  their  hopes  of  the  success  of  the  monetary 
reform  on  the  contraction  of  the  circulation,  but  on  the  efficacy  of  the 
functions  of  the  reserve  fund,  it  is  natural  that  they  should  champion 
the  expediency  of  throwing  open  the  mints  to  the  coinage  of  gold. 

It  is  probable  that  gold  would  not  at  once  be  oifered  for  conversion 
into  national  coin,  even  though  its  coinage  were  free;  but  not  on  that 
account  ought  its  coinage  to  be  prohibited  when  trade,  the  supreme 
arbiter,  causes  its  presentation  at  tlie  mints  of  the  Kepublic. 

The  undersigned  have  observed  a  lacuna  in  the  report  of  the  major- 
ity of  the  fifth  subcommittee  in  regard  to  the  measures  which  should 
be  adopted  during  the  period  of  transition. 

It  is  certain  that  the  mints  of  the  Republic  will  not  be  able  soon  to 
turn  out  the  entire  quantity  of  new  coins  necessary  to  be  given  in 
exchange  for  the  coins  at  present  circulating;  and  in  order  to  provide 
for  this  situation  and  to  assure  the  earliest  possible  disappearance  of 
the  present  circulating  medium,  thus  preventing  the  concurrent  use  of 
two  different  kinds  of  coin  by  the  jDublic,  it  would  seem  advisable  to 
authorize  the  mints  to  issue  certificates  of  deposit  to  bearer  for 
amounts  of  $500  and  $1,000, which  will  be  exchanged  for  the  new  coins 
as  fast  as  they  are  tiu'ned  out  within  a  specified  period  of  time.  These 
certificates  could  form  part,  just  as  if  they  were  coin,  of  the  metallic 
reserves,  which,  according  to  the  law  governing  institutions  of  credit, 
the  banks  must  hold  as  a  guaranty  for  their  note  circulation.  This 
measure  would  abridge  more  effectively  than  any  other  the  period  of 
transition,  and  would  enable  the  Government  to  retire  within  a  very 
short  period  of  time  a  large  portion  of  the  present  dollars  that  are  in 
circulation. 

Enrique  C.  Creel. 

M.  Fernandez  Leal. 

G.  Raigosa. 

Joaquin  D.  Casasus. 
Mexico,  December  5, 1903. 

My  opinions  are  opposed  to  the  monetary  change,  but  if  said  change 
is  to  l)e  made  I  am  in  accord  with  the  general  features  of  the  fore- 
going project. 

J.  DE  Landero  y  Cos. 


Annex  No.  9. — Opinion  of  Commissioners  Carlos  Diaz  Ditfoo,  Ricardo  Garcia 
Granados,  Jaime  Gurza,  Everaruo  IIegewisch,  Luis  G.  Labastida,  Pablo 
Macedo,  and  Carlos  Sellerier. 

The  undersigned  regret  that  they  have  been  unable  to  secure  the 
indorsement  of  all  of  their  esteemed  colleagues  of  the  fifth  subcommit- 
tee for  the  plan  of  monetary  reform  which,  after  careful  study,  they 
have  felt  themselves  in  duty  bound  to  submit  to  the  enlightened  con- 
sideration of  the  Government  of  the  Republic  as  a  remedy  for  the 
currencv  difficulties  which  beset  the  country  and  which  in  so  grave 
and  seru)us  a  manner  jeopardize  its  future. 

The  (liirereiices  that  have  arisen  in  th(^  fifth  subcommittee,  in  whose 
labors  Mr.  Euri(pie  C.  Creel,  the  vice-president,  and  Mr.  Jaime  Gurza, 
the  assistant  secretary,  have  taken  a  constant  and  active  part,  fortu- 


GOLD    STANDARD    IN     I  NT  KRN  ATION  AL    TRADE.  3V)1 

iiatoly  do  not  refer  eitlier  (o  tlie  measures  which  constitute  the  fun- 
damental hasis  of  {\\o  i)hui  wliicli  we  took  leave  to  reconnnend  to  the 
consideration  of  our  distinguished  colleagues  or  to  many  of  its  details 
even  of  a  secondary  nature.  Those  differences  are  confined  to  three 
concrete  questions:  First,  the  expediency  of  creating  immediately  a 
reserve  fund  in  gold  to  guarantee  the  conversion  into  that  metal  of 
the  silver  money  whose  coinage  is  })ro])osed ;  second,  the  opportune 
moment  for  commencing  the  coinage  of  the  new  gold  currency,  and, 
third,  a  mere  (U>tail  as  to  the  form  and  circulation  of  certain  special 
certificates  oi  the  mints,  in  regard  to  the  creation  of  which  we  are  all 
agreed.  In  ri'gard  to  these  three  ])oints,  whose  importance,  in  spite 
of  the  considerable  time  absorbed  by  their  discussion,  ought  not  to  be 
unduly  exaggerated,  we,  the  undersigned,  hold  views  that  differ  from 
those  held  by  Messrs.  Jaoquin  D.  Casasus,  P^nrique  C.  Creel,  Manuel 
Fernandez  I^eal,  Jose  de  Landero  y  Cos,  and  (xenaro  Raigosa. 

Such  being  the  case,  the  present  report  ought,  strictly  speaking,  to 
be  confined  to  the  points  which  have  given  rise  to  the  diversity  of 
oj^inion ;  but  they  are  so  intimately  l)ound  up  with  the  rest  of  the  plan 
of  monetary  reform  which  we  have  framed  and  which  figures  at  the 
end  of  this  report,  that  it  would  be  very  difHcult  for  us,  and  perhaps 
impossible,  clearly  to  expound  and  defend  our  views  in  regard  to  those 
special  points  without  having  reference  to  the  body  of  our  plan  and 
without  considering  it  in  the  aggregate.  We  have  therefore  pre- 
ferred to  give  a  full  exposition  of  the  reasons  on  which  we  have 
leased  our  plan  of  reform,  setting  forth  in  the  proper  place  the  argu- 
ments that  are  adducible  for  those  A'iews  of  ours  that  have  not  been 
fortunate  enough  to  command  the  unanimous  approval  of  our  col- 
leagues, whom  we  have  also  entreated  to  set  forth  their  views  in  writ- 
ing at  such  length  as  they  may  deem  fit. 

In  accordance  with  the  method  in  question  we  proceed  to  our  task 
without  further  delay. 

ANl'ECEDENT    FACTS.      " 

1.  After  having  investigated  the  matter  wnth  the  fullness  which  it 
considered  incumbent  upon  it,  the  fourth  subcommittee,  in  an  exten- 
sive and  laborious  report,  dated  August  13,  11H)3,  came  to  the  follow- 
ing conclusion:  '•  It  is  uncjuestioned  that  it  is  to  Mexico's  interest  to 
impart  the  greatest  possible  stability  to  its  international  exchange 
rates," 

2,  This  report,  which,  according  to  custom,  was  distributed  in 
printed  form  among  the  commissioners  several  days  in  advance,  was 
submitted  to  the  monetary  connnission  on  September  3  last,  and  of 
the  twenty-five  commissioners  Avho  were  present  at  the  session  only 
one,  Mr.  Jose  de  Landero  y  Cos,  expressed  dissent  from  the  conclu- 
sion above  named.  Subsequently  three  other  commissioners  expressed 
their  acquiescence  in  the  same  conclusion.  So  that,  altogether,  the 
opportune  moment  seemed  to  have  arrived  for  the  appointment  of 
another  subcommittee,  which,  as  indicated  by  the  fifth  point  of  the 
interrogatory  of  the  department  of  finance,  should  study  "  the  various 
measures  put  in  practice  by  other  nations  to  stabilize  their  rates  of 
international  exchange  and  in  general  to  solve  their  monetary  diffi- 
culties," and,  in  conclusion,  to  give  the  (jovernment  its  opinion  "  as  to 
the  most  efficacious  and  opportune  measures  to  improve  the  present 
monetary  situation  of  the  Republic." 


392  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

PROBLEMS    WHICH    HAVE    BEEN    STUDIED    AND    WHICH    IT    IS    DESIRED    TO 

SOLVE. 

3.  In  view  of  the  foregoing  antecedents  we  have  considered  that  it 
was  our  diit}^ — 

(a)  To  suggest  the  means  which  we  considered  most  opportune  and 
efficacious  to  bring  about  the  stabilization  of  our  international  ex- 
change rates,  and 

(h)  To  draw  up  a  plan  of  reform  as  complete  as  possible,  with  a 
view  to  improving  the  present  monetary  situation  of  the  Republic. 

MEANS  TO  STABILIZE  OUR  INTERNATIONAL  EXCHANGE  RATES. 

4.  The  problem  of  stabilizing  the  rate  of  international  exchange 
may  assuredly  be  solved  in  different  ways,  according  to  the  circum- 
stances; but  if,  on  the  other  hand,  it  be  considered  that  the  chief  civil- 
ized nations  have  deemed  it  to  be  their  interest  to  adopt,  and  one  after 
another  have,  de  facto,  adopted,  the  gold  standard,  turning  their  backs 
with  or  without  reason,  on  the  gold  and  silver  bimetallic  regime;  on 
the  other  hand,  that  all  the  attempts  which  have  been  made  to  return 
to  the  bimetallic  regime  in  question  by  means  of  international  conven- 
tions, have  failed;  that  the  gold  price  of  silver,  due  to  these  causes 
alone  or  to  these  causes  coupled  with  others,  has  fallen  considerably 
in  the  world's  markets,  also  fluctuating  through  a  very  wide  range; 
i!nd,  finally,  that  our  financial  relations  of  every  kind  are  with  gold 
monometallist  nations,  it  has  seemed  to  us  that  the  only  efficacious 
and  practical  method  to  impart  fixity  to  our  international  exchange 
rates  lay  in  the  adoption  of  the  same  metal  as  the  basis  or  measure  of 
values  in  the  Republic. 

The  reasoning  that  has  led  us  to  this  conclusion  is,  in  our  opinion,  de- 
cisive, and  setting  aside  theoretical  disquisitions  which  would  be  out  of 
place  here, may  l)e  summed  uj)  as  follows:  Tlie  phenomenon  of  inter- 
national exchange  is,  in  reality,  only  the  result  of  operations  of  a  like 
nature  to  those  wliich  take  place  bet^veeu  a  country's  internal  markets 
and  just  as  the  latter,  for  purposes  of  rapidity  and  simplicity,  require 
a  value  to  act  as  common  denominator  and  that  value  is  found  in  coin, 
so  the  former,  if  they  are  to  be  conducted  under  ecjually  favoral)le 
conditions,  necessitate  the  existence  of  a  value  on  which  they  may  be 
based  and  wliich  will  be  accepted  by  the  parties  to  international  com- 
merce. Now,  in  the  present  economical  state  of  the  world,  that  value 
can  be  nothing  but  a  single  monetary  metal,  if,  as  we  have  said,  the 
desire  is  to  establish  a  basis  of  excliange  that  shall  work  easily  and 
expeditiously;  for,  otherwise,  what  in  one  nation  is  money  is  in 
another  nothing  but  a  commodity,  and  the  rates  of  international  ex- 
change vary  with  the  prices  commanded  by  that  commodity. 

THE   GOLD   STANDARD   WITH    fiOI.D   IN    CIRCULATION. 

.5.  Having  reached  the  above  conclusion  our  next  stej)  Avas  to  under- 
take an  examination  in  detail  of  the  xarious  monetary  systems  of  the 
nations  which  have  adopted  the  gold  standard.  AVe  will  not  hei-e  set 
forth  the  results  of  that  examination,  save  to  the  extent  that  is  abso- 
lutely necessary,  for  in  the  two  volumes  j^iiblished  by  the  coiiMuission 
under  the  title'  of  Data   for  the  Study  of  the  Monetary  Question  in 


GOLD    STATfDARD    IN    INTERNATIONAL    TRADE.  893 

Mexico,  full  i^iirliculnrs,  MJiich  w(>  Iumv  omit  for  the  sake  of  l)r('vily, 
will  be  fouiul. 

6.  The  most  importanl  of  those  resulls  was  the  demonstration  of 
the  fact  that,  among-  the  systems  in  question,  the  best  seems  to  be  that 
Avhioh  is  based  on  the  free  coinage  of  gold  and  the  actual  circulation 
of  gold  coins,  because  it  renders  a  country's  currency  elastic  and  self- 
I'egulating  and  ])r()tects  it  from  artificial  interferences  which  often 
interrui)t  the  natural  oj)erati()n  of  the  comjjlex,  varied,  and  manifold 
causes  that  influence  the  econonuc  life  of  nations.  On  the  other  hand, 
the  dictates  of  science,  which  stigmatizes  as  tlangei-ous  the  interfer- 
ence of  the  state  in  the  free  and  spontaneous  operation  of  economic 
laws,  whether  that  interference  is  exercised  directly  or  indirectly 
through  privileged  institutions,  corroborate  the  conclusion  to  which 
we  have  alluded,  and,  in  accordance  therewith,  we  firmly  believe  that 
the  best  monetary  system  that  can  be  reconnnended  to  a  country 
Avhich  desires  to  realize  the  conditions  that  are  at  ])resent  most  con- 
ducive to  economic  prosperity  and  progress,  is  the  gold  standard,  with 
free  coinage  of  gold  and  an  actual  circulation  of  that  metal. 

7.  Now  can  the  Kepublic  adopt  at  once  a  monetary  sj^stem  based 
on  those  conditions,  or,  in  other  words,  can  it  at  once  adopt  the  gold 
standard  Avith  the  free  coinage  of  gold  and  gold  in  circulation?  In 
our  opinion  it  can  not  for  many  reasons,  of  which  the  two  follow- 
ing sum  to  us  the  chief  and,  therefore,  the  decisive  ones : 

(a)  Though  the  production  of  gold  in  the  Republic  has  kept  pace 
with  its  general  progress  and  last  vear  (1002-'))  amounted  to  21.921.- 
208  kilograms,  worth  $1-1,805,9T5.27  gold  at  the  legal  rate  of  $675.-tlG 
per  kilogram,  the  whole  of  that  production  is  exported  and  there  is 
absolutely  no  gold  here  either  in  circulation  or  (as  it  seems  fair  also 
to  affirm)  hoarded  up,  for  in  the  reserves  of  our  numerous  banks  of 
issue  the  stock  of  gold  is  insignificant  and  there  is  no  groiuid  to  be- 
lieve that  it  is  held  in  appreciable  amounts  by  private  persons.  Thus 
in  order  to  get  gold  for  purposes  of  monetary  circulation*  the  nation 
woi dd  have  to  buy  it  in  the  open  market,  which,  in  one  form  or 
another,  would  impose  a  heavy  sacrifice  on  the  country  which  neither 
the  exchequer  nor  i)rivate  parties  could  carrv  without  serious  loss. 

(/>)  The  Ke[)ul)lic,  on  the  other  hand,  is  one  of  the  largest  silver 
producers  in  the  world  and  is,  therefore,  interested  in  staying  the  de- 
cline of  the  white  metal  and  maintaining  the  consumption  thereof  for 
monetary  purposes.  So  great  do  we  consider  this  interest  to  ]j(>  that, 
in  all  probability,  we  must  look  to  an  unconscious,  somewhat  unrea- 
soning, but  3'ct  efficacious  realization  thereof,  for  the  foundation  of 
the  belief,  generally  entertained  until  (|uite  recently,  that  Mexico 
could  not  change  her  monetary  system  until  her  exports  other  than 
silver  sliall  suffice  at  least  to  pay  for  her  imports  of  foreign  merchan- 
dise. Be  that  as  it  n\i\}\  it  is  evident  that  our  interests  as  silver  pro- 
tlucers  can  not  be  subserved  by  the  decline  in  the  gold  price  of  silver, 
and  there  can  be  no  question  that  if  we  were  to  adopt  outright  the 
gold  standard,  demonetizing  silver,  we  should  accentuate  that  decline 
for  two  substantial  reasons.  One  of  those  reasons,  and  ])erhaps  the 
more  important  one,  would  be  the  moral  effect  that  would  l)e  produced 
in  the  world's  markets,  which  are  already  weak,  we  might  even  say 
nervous,  through  the  ado])tion  of  the  gold  standard  on  the  part  of  a 
nation  wliich  ha<I  been  faithful  to  the  cause  of  silvei*  and  which,  by  at 
last  reliniiuishing  it,  would  give  it.  so  to  speak,  the  couj)  de  grace.     The 


394       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

other  reason  would  be  more  effective  and  not  less  important  and  would 
consist  in  the  fact  that  in  adopting  the  gold  standard  we  should  have 
to  withdraw  from  circulation  within  a  brief  period  of  time  substantial 
sums  of  silver  and  should  cease  to  require  in  future  the  appreciable 
quantities  of  that  metal  which  we  use  for  monetary  purposes.  For  this 
twofold  reason,  and  because  undoul)tedly  we  should  have  to  sell  the 
demonetized  silver,  there  woidd  be  a  larger  quantity  of  that  metal 
available  on  the  market  and  it  is  well  known  that  the  inevitable  effect 
of  an  increased  supply  of  a  commodity  is  the  lowering  of  its  price. 

A   SILVER  CIRCULATION   BASED   ON   GOLD. 

8.  Another  fact  that  is  established  by  a  close  study  of  the  monetary 
systems  of  nations  which  have  adopted  the  gold  standard  is  that  all 
of  them  have  retained  silver  in  circulation,  in  some  cases  as  subsidiary 
coinage,  in  others  as  full  and  unlimited  legal  tender,  but  in  eithei-  case 
in  very  substantial  quantities.  This  fact,  coupled  with  the  circum- 
stance that  this  mass  of  silver  coin  has  been  maintained  at  the  same 
parity  with  gold  coin,  as  prevailed  when  the  two  metals  stood  in  the 
ratio  of  1  to  15^  or  1  to  16,  can  not  but  strike  the  observer  as  ex- 
tremely remarkable,  when,  as  is  well  known,  that  ratio  ceased  to  exist 
years  ago  and  has  given  place  to  a  ratio  at  times  approximating  1  to 
40  on  the  basis  of  the  market  prices  of  the  precious  metals. 

9.  On  the  other  hand,  some  nations,  foremost  among  them  being 
British  India,  have  succeeded  in  passing  from  silver  monometallism 
to  gold  monometallism,  while  retaining  in  circulation  a  very  consider- 
able quantity  of  silver  coins,  which  at  first  were  as  depreciated  as  the 
metal  itself,  but  which  in  time  attained  a  gold  valuation  considerably 
in  excess  of  the  value  of  the  silver  which  they  contained.  Hence  it 
has  seemed  to  us  fair  to  conclude  that  though  the  best  monetary 
regime  consists  in  the  adoption  of  the  gold  standard  with  gold  in 
circulation^  it  is  possible  under  given  conditions  to  establish  a  system 
under  which  silver  is  the  actual  circulating  medium  and  is  unlimited 
legal  tender,  while  at  the  same  time  it  stands  in  a  fixed  and  stable 
ratio  to  gold  and  is,  in  consequence,  based  upon  gold. 

10.  When  silver  is  only  used  for  subsidiary  coinage  and  the  only 
money  that  is  unlimited  legal  tender  is  gold,  as  is  the  case  in  Ger- 
many, England,  and  other  nations,  the  system  is  elastic  in  its  nature 
and,  as  we  have  pointed  out,  operates  automatically.  On  the  other 
hand,  if  silver,  either  alone  or  in  combination  with  gold,  is  unlimited 
legal  tender,  as  is  the  case,  for  example,  in  France  and  Holland,  the 
system  does  not  conform  altogether  to  the  conditions,  which  scientific- 
ally speaking,  a  currency  ought  to  possess,  and  therefore  it  consti- 
tutes, or  ought  to  constitute,  merely  a  transcient  regime,  and  this 
because  it  necessitates  the  constant  action  and  vigilance  of  the  public 
authorities,  whose  intervention  in  such  matters,  according  to  sound 
principles  of  government,  ought  to  be  restricted  to  absolutely  indis- 
pensable limits  and  ought  to  cease  altogether  as  soon  as  circum- 
stances render  that  possible. 

11.  Such  are  the  princi])les,  as  set  forth  in  the  first  tAvo  articles  of 
the  resolutions  Avith  which  this  opinion  terminates,  that  have  in- 
formed the  plan  of  monetary  refoi'm  which  is  exi)anded  in  the  thir- 
teen clauses  or  jji-opositions  contained  in  the  thit'd  article  and  con- 
stituting, in  our  humble  opinion,  the  gcnci-al    measures   which   the 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       395 

Govorninont  of  the  IJt'jiuhlic  ou£>lit  to  adoj^t.  AVc  now  proceed  to  i>-ive 
our  reasons  for  them,  iiKH-ely  preinisini!;  tliat  some  of  thos<'  i)roposi- 
tions  are  not.  basic  nor  indispensable,  but  merely  aim  at  correcting 
the  imperfections  of  our  existing  monetary  regime,  in  so  far  as  it 
affects  the  subsidiary  coinage,  and  that  if  we  have  embodied  them  in 
our  plan  we  have  done  so  because  it  seemed  tons  that  the  realization  of 
a  reform  in  r(\gard  to  more  important  points  afforded  an  ()[)poi'tunity 
that  ought  not  to  be  missed  to  adjust  the  new  system  to  scientilic  prin- 
ciples, even  in  i)oints  of  detail,  none  of  which  lack  importance  though 
at  first  sight  the}'  may  seem  to. 

BASES   OF  THE  PLAN   OF   MONETARY  REFORM. 

A.  Closing  of  the  tniiiU  to  the  free  eoinage  of  ftllrer. — 12.  "\A'lien 
one  examines  the  monetary  systems  in  Avliich  silver  plays  a  more  or 
less  important  role  (and  Ave  have  already  stated  thist  such  are  the 
monetary  systems  of  all  civilized  nations,  not  excluding  those  which 
have  a  gold  standard  with  gold  in  circulation)  it  is  easy  to  observe 
that  there  is  one  characteristic  feature  Avhich  is  conmion  to  all  of 
them,  and  it  is  that  silver  is  not  coined  freely  at  the  request  of  private 
individuals,  but  that  the  right  of  issuing  it  appertains  exclusively  to 
the  state,  which  adjusts  the  quantity  of  silver  coin  in  circulation 
either  to  settled  rules  or  to  the  dictates  of  a  wise  and  enlightened 
solicitude  for  the  public  interests.  This  fundamental  fact  has  led  us 
to  examine  in  detail  its  cause  and  its  effects;  and  though  both  have 
been  already'  fully  elucidated  by  economists,  so  that  it  would  perhaps 
be  sufficient  merely  to  refer  to  their  works,  we  have  decided  to  recapit- 
ulate them  here,  Avithout  laying  any  claim  to  novelty,  in  order  to 
make  clear  the  importance  which  we  attach  to  the  first  of  the  bases  of 
our  plan  of  monetarj^  reform,  viz.,  the  closing  of  the  mints  to  the  free 
coinage  of  silver. 

13.  It  is  a  fact  well  known  to  political  economy  that  monej',  though 
its  object  is  to  act  as  a  measure  of  values,  is  subject  to  the  law  of  sup- 
ply and  demand  like  any  other  article  or  commodity  that  can  become 
the  basis  of  mercantile  transactions  between  man  and  man;  and  this 
fully  explains  why  it  is  that  a  metallic  coin,  of  which  the  coinage  is 
free,  is,  for  pnr])Oses  of  international  exchange — the  aspect  under 
which  we  are  considering  the  question — inevitably  and  fatally  linked 
to  the  price  of  the  metal  of  which  it  is  made,  as  is  the  case  with  the 
Mexican  dollar,  and  will  always  be  the  case  as  long  as  we  continue 
under  our  present  monetary  regime. 

14.  As  a  matter  of  fact  the  phenomenon  of  international  exchange 
Ijetween  countries  whose  currencies  are  based  on  different  metals 
resembles  in  reality  any  other  connnercial  transaction  in  which  each 
party  tries  to  get  the  best  of  the  bargain,  securing  as  much  as  he  can 
and  giving  as  little  as  possi))le  in  return.  Now,  let  us  consider  what 
happens,  for  example,  between  a  person  who  possesses  Mexican  dol- 
lars and  who  wishes  to  obtain  gold  and  a  person  who  possesses  gold 
or  foreign  gold  coin  and  who  wishes  to  obtain  Mexican  dollars.  If 
the  latter  is  asked  to  pay  for  the  Mexican  dollars  which  he  needs  a 
higher  price  than  the  silver  which  they  contain  is  worth,  he  can  avoid 
pa3dng  that  price  either  by  buying  dollars  abroad,  where  large  quanti- 
ties of  them  are  to  be  had,  or  l)y  securing  silver  in  the  open  market 
and  having  it  coined.     It  is  true  that,  theoretically,  the  cost  of  either 


396    .   GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

of  those  operations  ought  to  constitute  a  limit  to  the  depreciation  of 
onr  clolhirs,  preventino;  them  from  sinking;  to  exactly  the  same  price 
as  the  silver  Avhich  they  contain;  but  in  practice,  owing  to  causes 
which  it  would  take  us  too  long  to  explain,  that  limit  disappears  and 
is  of  no  avail,  and  in  any  CA'ent  it  constitutes  so  small  a  margin  as  to  be 
hardly  of  any  use  to  the  holder  of  dollars.  The  situation  will  not  be 
the  same  if  the  coinage  of  dollars  ceases  to  be  free,  for  then  it  will  only 
be  possible  to  obtain  silver  dollars  from  the  holders  thereof,  who  will 
thus  find  themselves  in  possession  of  an  article  of  which  the  supply 
will  be  limited  and  which  will,  therefore,  be  susceptible  of  apprecia- 
tion in  proportion  to  the  demand.  This  situation,  if  carefully  exam- 
ined, is  found  to  be  in  no  manner  essentially  unjust,  for,  as  in  practice, 
the  quantity  of  gold  is  not  unlimited  (seeing  that  of  the  total  stock 
of  that  metal  in  the  world  we  need  only  take  into  account  that  portion 
which  is  in  the  hands  of  persons  wdio  desire  or  who  have  to  contribute 
the  value  wdiich  it  represents  to  our  markets)  ;  the  only  thing  done  in 
reality  is  to  create  conditions  of  equality  between  the  interests  that 
are  pitted  against  one  another.  Such  being  the  case,  if  gold  exists 
only  in  a  limited  (luantity  there  is  no  injustice  in  also  limiting  the 
quantity  of  the  silver  coins  that  may  have  to  be  given  in  exchange  for 
gold. 

15.  By  means  of  the  principle  of  the  limitation  of  the  supply  of 
coin,  which,  in  our  opinion,  is  borne  out  by  the  experience  of  all 
nations  and  is  sanctioned  by  the  teachings  of  economists,  it  is  possible 
to  disassociate  the  value  of  a  coin  from  its  mere  bullion  value  and 
even  to  raise  it  to  such  parity  with  gold  as  the  law  may  establish, 
provided  only  that  the  quantity  of  coin  in  circulation  be  proportion- 
ate to  the  demand  therefor,  or,  in  other  words,  that  the  quantity  of 
coin  be  not  excessive  in  relation  to  the  requirements  which  it  is 
destined  to  meet. 

But  what  are  those  requirements  in  any  given  nation  or  people? 
We  think  that,  theoretically,  it  is  almost  impossible  to  ascertain 
them,  for  they  depend  on  causes  Avhich  are  extremely  complex  and 
varial)]e,  such  as  the  number  and  character  of  the  operations  into 
which  coined  money  enters;  the  coefficient  of  raj^idity  of  its  circula- 
tion, which  in  turn  depends  on  the  greater  or  less  use  that  is  made  of 
the  instrumentalities  of  credit  in  their  manifold  forms;  the  degree  of 
wealth  and  enlightenment  of  the  mercantile  community  and  of  the 
])('01)le  in  general;  and  even  the  inclinations  and  preferences  of  the 
p('()j)UN  \\hicli  are  often  unknown  and  for  Avhich,  even  when  known 
in  part,  it  is  not  always  easy  to  assign  a  satisfactory  and  rational 
exi)hination.  Kxperience,  therefore,  seems  to  be  the  only  safe  guide 
in  so  delicate  a  matter,  and  this  is  especially  true  in  the  case  of  Mex- 
ico, seeing  that  we  ai"e  without  information  as  to  the  most  elementai'v 
factors  of  the  problem,  as  is  clearly  demonstrated  by  the  single  fact 
that  the  third  subcommittee,  in  spite  of  its  patient  and  laborious 
investigations,  was  unable  to  determine  tlie  (juantity  of  coin  held  in 
the  liepublic. 

IC),,  Wv  will  return  to  this  (|uestion  later  on.  For  the  time  being  it 
is  desirable  to  state  that  another  very  inq)()rtant  consequcMice  of  the 
ojx'ration  of  the  law  of  su])i)ly  and  demand,  as  apj)lied  to  coin,  is  that, 
in  the  cas(>  before  us,  it  can  be  affii'ined  that  evei'vthing  that  tends  to 
curtail  the  dcMuand  for  gold  or  to  increase  the  sui)ply  thereof,  in  the 


GOLD  STANDARD  IN  INTERNATIONAL  TRAi)K.   •    397 

homo  luarkots,  Avill  help  tlie  ostablislinient  and  niaintonance  of  the 
lo^al  parity  between  <>ol(|  ;ind  silver  coins  and  hence  of  the  stability 
of  international  exchan<»;e.  In  the  former  respect  it  seems  evident, 
for  example,  that  the  expansion  of  our  industrial  prodr.ction,  curtail- 
ini:;.  as  it  -will,  the  importation  of  similar  foi"ei<>n  articles  Avhich  have 
to  be  i)aid  for  in  <j;;o1d;  the  use,  as  far  as  possible,  for  the  service  of 
our  national  yohl  debt,  of  the  reserves  owned  by  our  (Jovernment 
abroad,  inasnnich  as  that  use  will  diminish,  at  least  temj)orarily,  the 
pnirhases  of  drafts  on  foreiijn  cities;  and  other  similar  measures  will 
contribute  to  the  maintenance  of  the  parity.  Equally  evident  is  the 
inlluence  that  nii^ht  be  exerted  in  the  same  direction  by  all  agencies 
tendino-  to  stinudate  our  exports  of  merchandise  as  well  as  of  securi- 
ties, involvino-  the  introduction  of  foreign  capital,  which  jilays  so 
important  a  part  in  equali/ang-  our  trade  balances,  as  has  been  proved 
to  the  i)oint  of  evidence  by  the  interesting-  investigations  of  the  first 
subcommittee. 

17.  In  spite  of  all  this,  could  we  and  ought  we  to  recommend  the 
adoption  of  measures  of  a  general  character,  such  as  those  mentioned, 
of  which  the  aim  should  be  to  bring  nbout  and  maintain  the  stability 
of  international  exchange?  Prudence  counsels  us  to  refrain  from 
doing  so,  for,  in  addition  to  the  fact  that  we  lack  a  good  deal  of  infor- 
mation that  would  be  indispensable  to  enable  ns  to  argue  with  })roba- 
bilities  of  accuracy  and  that  the  Government's  financial  policy  is 
already  clearly  directed  to  the  aims  in  qu(>stion,  as  is  proved  by  the 
uninterrupted  material  ])rogress  of  the  Ivepul)lic,  it  seemed  to  us  that 
the  scope  of  our  labors  was  confined  to  the  questions  that  are  directly 
and  intimately  connected  with  the  monetary  problem  as  to  which  Ave 
Avere  honored  by  being  consulted.  For  these  reasons  Ave  haA^e  confined 
ourseh'es  to  the  general  suggestion  contained  in  the  opening  sentence 
of  the  eighth  base  of  our  plan  of  reform. 

CREATION   OF    A    RES1£KVK   FUND   IN    COLD. 

18.  But  among  the  questions  that  are  intimately  connected  Avith  the 
monetary  problem  is  that  Avhich  invoh'es  the  expedience  of  creating  a 
special  reserve  fund  in  gold,  destined  to  exercise  a  very  direct 
influence  on  the  home  market  for  foreign  exchange,  in  the  direction  of 
establishing  and  maintaining  the  legal  parity  betAveen  gold  and  silver 
coins,  either  by  freely  furnishing  gold  for  exportation  or  selling- 
drafts  on  foreign  parts,  AvheneA'er,  OAving  to  the  scarcity  of  drafts  on 
the  market,  there  shall  arise  a  stiffening  of  the  rates  of  exchange  cal- 
culated to  jeopardize  the  maintenance  of  the  legal  parity.  This  Avas 
a  question  Avhich  had  to  be,  and  has,  in  effect,  been  the  object  of  our 
closest  study. 

10.  Unfortunately  in  this  respect  the  opinions  of  the  persons  form- 
ing the  fifth  subcommittee  and  of  Messrs.  Enrique  C.  Creel  and  fJaimc 
(rurza,  Avho  have  taken  an  assichious  j)art  in  the  labors  of  that  sub- 
committee, have  not  been  unanimous. 

Messrs.  Joaquin  D.  Casasus,  Enrique  C.  Creel,  Manuel  Fernandez 
Leal,  Jose  de  Landero  y  Cos,  and  Genaro  Kaigosa  advocate  the  imme- 
diate creation  of  this  special  reserA'e  fund  in  gold  for  the  reasons  set 
forth  !)v  them  in  separate  documents.  The  undersigned  haA^e  come 
to  the  opposite  <-onclusion  for  the  reasons  Avhich  they  Avill  proceed  to 
expound,  after  placing  on  record  an  important  reservation. 


3V)8  GOLD    STANDARD    IN    INTERNATIONAL   TRADE. 

20.  We  acknowledge  that  tlie  creation  of  a  reserve  fund  in  gold, 
})rovided  its  amount  be  considerable,  is,  without  doubt,  the  most  effica- 
cious measure  that  can  be  adopted  to  secure  at  once  a  given  rate  of 
exchange  and  even  to  l)ring  about  the  legal  parity  aimed  at,  seeing 
that  it  brings  into  phi}^  both  of  the  influences  which  Ave  have  men- 
tioned as  best  adapted  for  the  realization  of  those  objects.  On  the 
one  hand  it  increases  the  supplies  of  gold  oU'ered  in  the  home  markets 
and  on  the  other  it  Avithdraws  silver  coin  from  circulation,  so  that  its 
action  will  be  twofold  and,  in  consequence,  rapid,  nay,  immediate. 

21.  But  this  fact,  from  our  standpoint,  constitutes  one  of  the  great- 
est drawbacks  to  the  creation  of  the  fund  upon  the  first  introduction 
of  the  monetary  reform,  for  it  is  not  to  be  forgotten  that  that  reform, 
though  destined  greatly  to  benefit  the  general  interests  of  the  Repub- 
lic, will  at  first  occasion  some  inconvenience  and  loss  to  the  export 
industries  and  the  silver-mining  industry.  The  silver-mining  indus- 
try, under  the  present  system,  which  enables  it  to  turn  its  output  into 
coin,  is,  paradoxical  as  it  may  seem,  the  industry  that  is  least  affected 
by  the  decline  in  the  gold  price  of  silver ;  and  the  other  export  indus- 
tries which,  in  proportion  as  silver  has  declined,  have  secured  larger 
and  larger  amounts  of  the  national  coin  for  the  gold  in  which  they 
have  sold  their  products,  will  cease  to  enjoy  that  privileged  position 
when  the  monetary  reform  shall  have  been  consunniiated,  as  they  will 
no  longer  reap  the  profits  which  they  now  secure  at  the  expense,  in 
reality,  of  the  generality  of  the  Eepublic's  inhabitants.  This  fact 
has  been  demonstrated  by  the  labors  and  investigations  of  all  the 
subcommittees,  especially'  the  fourth ;  and  though  such  a  condition  of 
affairs  is  detrimental  to  the  national  interests,  though  the  new  mone- 
tary arrangements,  which  it  is  sought  to  establish  on  sound  and  just 
lines,  will  redound  later  on  to  the  advantage  e^x^n  of  the  silver-mining 
industry  and  the  other  export  industries,  the  fact  remains  that  l)oth 
the  former  and  the  latter  will  suffer  a  temporary  curtailment  of  their 
present  profits,  so  that,  in  our  humble  opinion,  the  change  ought  not  to 
be  made  brusquely,  from  one  day  to  another,  but  gradually  and  pro- 
gressively, so  that  the  interests  affected  maj^  have  time  to  adjust  them- 
selves to  the  new  conditions.  This  object  would,  in  our  opinion,  be 
achieved  by  the  mere  closing  of  the  mints  to  the  free  coinage  of  silver, 
which  would  naturally  produce  a  gradual  rise  in  the  value  of  our  sil- 
ver coins  and  a  corresponding  gradual  decline  in  the  rate  of  interna- 
tional exchange. 

Perhaps  the  rise  in  question  might  suffice  to  bring  al)out  legal  par- 
ity either  at  once  or  very  soon.  If  this  were  to  occur,  certainly  we 
would  not  be  in  favor  of  preventing  or  checking  that  rise  by  artificial 
means,  for  the  mere  fact  of  the  rise  l)eing  the  result  of  the  natural  con- 
ditions of  the  exchange  market  would  afford  ground  for  inferring 
that  the  interests  affected  had  been  able  to  adjust  themselves  to  the 
altered  circumstances;  otherwise  silver  mining  and  the  export  indus- 
tries woidd  have  l)een  paralyzed  to  a  greater  or  less  extent,  and  as 
that  ])ara]_y>;idion  Avould  have  entailed  a  cui'tailment  of  the  sujjply  of 
gold  in  the  home  markets  it  wouhl  have  materially  hampered  the 
attainment  of  the  legal  parity  which  we  are  now  supposing  to  have 
been  realized. 

22.  In  rebuttal  of  our  argument  based  on  the  danger  that  would  be 
incidental  to  the  brusque  and  artificial  establishment  of  the  legal 


GOLD    STANDARD    IN    INTERNATIONAL    TKADK.  399 

parity,  it  has  been  urged  that  the  country  is  accustomed  to  violent 
fluctuations  in  the  rate  of  exchanoe  and  it  is  inferred  that  one  more 
fluctuation  'wouhl  not  produce  disastrous  consequences,  principally 
because  it  Avould  l)e  the  last  and  would  lead  the  way  once  for  all  to 
tlu>  wished-for  stability.  Frankly,  we  must  say  that  this  argument  is 
far  from  reassuring  us;  ioi\  though  it  is  true  that  the  country  has 
passed  through  brus(|ue  and  unexpected  variations  in  the  rates  of 
exchange,  those  variations  are  none  the  less  an  evil  which,  as  a  matter 
of  principle,  it  is  not  permissible  voluntarily  and  deliberately  to 
court,  and,  moreover,  there  is  a  diiference  l)et\veen  putting  up  Avith 
alternations  of  rise  and  descent  and  confronting  a  definite  and  lasting 
fall  of  exchange  rates. 

28.  The  inuuediate  creation  of  the  gold  reserve  fund  might  be 
reconnnended,  as  it  has  been  at  some  of  the  debates  of  the  fifth  sub- 
committee, as  a  means  not  of  at  once  attaining  the  legal  parity,  but  of 
bringing  about,  with  a  certain  degree  of  prearranged  regularity, 
a  gradual  and  progressive  improvement  in  the  rate  of  exchange.  In 
our  opinion  this  system  woidd  also  be  very  dangerous,  for  it  would 
vest  exclusively  either  in  the  authorities  or  in  a  special  body  to  be* 
appointed  by  the  authorities  the  absolute  control  of  the  exchange 
market,  witliout  allowing  any  scope  to  the  natural  causes  which 
ought  to  govern  it  and  to  have  free  pla}'^,  unless,  indeed,  it  should 
appear  that  other  artificial  causes  are  at  work  to  impede  the  success 
of  the  reform,  in  which  case  measures  for  the  removal  of  those  causes 
would  be  warranted. 

On  tliQ  other  hand  it  Avould  appear  very  difficult,  not  to  say  impos- 
sible, to  map  out  in  advance  a  progrannne  that  should  embrace  a 
])eriod  perhaps  of  years  for  the  gradual  realization  of  the  stability 
of  interiuitional  exchange  rates,  and  in  any  event  it  is  certain  that  the 
gradations,  however  prudently  they  might  be  calculated,  Avould  afl^ord 
a  wide  margin  to  speculation,  of  which  the  basis  would  be  all  the  more 
secure  in  proportion  to  the  confidence  felt  in  the  Government's  ability 
to  carry  out  its  prearranged  programme.  Its  modus  operandi  would 
consist  in  the  introduction,  in  the  first  instance,  of  a"  gold  capital 
which  would  be  exchanged  for  a  given  quantity  of  pesos,  and  with 
these  pesos  more  anrl  more  gold  Avould  be  bought  as  the  rate  of 
exchange  continued  to  fall.  It  may  be  said  that  in  this  way  the  intro- 
duction of  foreign  capital  Avould  be  encouraged.  True;  but  its  object 
would  not  be  to  promote  the  welfare  of  the  country,  but  deliberately 
and  hurt  fully  to  exhaust  its  resources  by  speculating  with  them  and 
this,  far  from  deserving  encouragement,  ought  to  be  prevented  as 
much  as  possible. 

24.  Another  draAvback  which  we  find  in  the  immediate  creation  of 
the  gold  reserve  fund  lies  in  the  sacrifice  Avhich  it  would  in  one  form 
or  another  impose  on  the  country  by  augmenting  its  j)ul)lic  de])t  in 
gold,  a  contingency  Avhich,  Avere  it  only  on  account  of  the  disfavor 
with  Avhich  it  Avould  be  receiA-ed  by  the  public,  might  be  attended  Avith 
dangers  of  another  sort  on  Avhich  we  need  not  dAvell,  but  to  which  the 
GoA'ernment  Avill  assuredly  give  due  Aveight,  Avithout  any  necessity  on 
our  part  of  pointing  them  out. 

25.  Moreover,  the  reasons  that  have  been  iuA^oked  for  creating  the 
fund  are,  it  seems  to  us,  far  from  being  conclusive. 

It  was  stated  during  some  of  the  discussions  of  the  fifth  subcommit- 


400       GOLD  STANDARD  IN  INTERNATIONAL  TRADP:. 

tee  that  there  might  be  reason  to  fear  the  organization  of  a  combine, 
for  the  purpose  of  maintaining  the  high  rates  of  international 
exchange,  for  tlie  benefit  of  the  silver-mining  interests  and  the  export 
interests  in  general — interests  represented  by  connmniities  which, 
though  not  niuiierous,  wield  considerable  financial  power.  We  believe 
that  the  (Tovernment  would  not  remain  inactive  in  the  new  situation 
and  that  its  moral  influence,  supported  as  it  would  be  by  the  banks, 
by  importers,  and,  al>ove  all,  by  all  the  legitimate  interests  of  the 
country,  would  suffice  to  l^afHe  a  monopolistic  combine  of  this  nature 
in  the  event  of  its  coming  into  existence. 

26.  It  has  also  been  said  that  the  country's  trade  balance  is  always 
adverse  and  that  it  has  only  been  settled  hitherto  through  the  invest- 
ment, on  a  large  scale,  of  foreign  capital.  The  fact  is  unquestioned 
and  we  liaA^e  no  thought  of  controverting  it ;  but  the  monetary  reform 
Avill  in  no  way  discourage  further  investments,  rather  it  will  stimulate 
them,  however  slender  its  immediate  effects  may  be,  for  in  anj'^  event 
it  will  constitute  a  moral  and  material  improvement  over  present 
conditions. 

Moreover,  the  more  adverse  our  trade  balance  is  made  out  to  be 
the  greater  the  danger  of  creating  a  I'eserve  fund  in  gold,  for  the 
greater  will  be  the  risk  of  its  l)eing  exhausted  rapidly  and  to  no  pur 
pose;  for,  inasmuch  as  the  stability  of  international  exchange  depends, 
as  we  believe  we  have  demonstrated,  on  the  equilibrium  between 
the  demand  for  gold  and  the  demand  for  silver  coin,  it  would  seem 
natural,  in  order  to  bring  about  that  equilibrium,  to  place  reliance 
on  the  economic  forces  of  the  country  rather  than  on  the  mere 
existence  of  a  fund  necessarily  limited  in  amount  and  of  which  the 
utility,  if  it  exists  at  all,  may  consist  in  meeting  temporary  or  acci- 
dental wants,  but  never  the  wants  that  are  permanent.  In  other 
words,  if  our  trade  balance  is  chronically  on  the  wrong  side,  the  live 
forces  of  the  country  alone  can  modify  that  condition ;  and  if  the 
lack  of  equilibrium  is  only  temporary  or  accidental,  it  is  desirable  in 
any  case  to  know  the  etlftcacy  of  those  forces  and,  if  necessary,  to 
impart  to  them  such  stimulus  as  to  enable  them  alone  either  to  cur- 
tail our  gold  requirements  or  to  augment  the  amount  due  to  us  in  that 
metal.  To  act  otherAvise  is  to  take  a  leap  in  the  dark  or  to  blunt 
individual  initiative,  which  is  more  powerful  than  that  of  the  best 
and  wisest  government. 

27.  The  immediate  creation  of  the  gold-reserve  fund  is  attended 
w^ith  another  very  serious  danger  which  we  can  not  pass  over  in 
silence.  Though  it  might  inspire  some  capitalists  with  confi,dence  in 
the  material  success  of  the  reform,  it  might  be  view^ed  in  a  different 
light  by  other  capitalists  either  because  they  might  consider  its 
amount  insufficient  or  for  any  other  reason.  If  this  were  to  occur, 
and  it  must  be  allowed  that  the  contingency  is,  to  say  the  least,  not 
impossible,  the  existence  of  the  gold-reser\e  fund  might  produce  the 
very  opposite  effect  to  that  intended,  as  it  might  occasion,  if  only  tem- 
porarily, an  exodus  of  foreign,  nay  of  native  capital,  eager  to  seize 
the  oiq)ortunity  for  conversion  into  gold  at  a  favorable  rate.  If,  in 
addition,  one  takes  into  account  the  fact  that  speculation  might  take  a 
hand  either  in  starting  or  accentuating  a  sudden  withdrawal  of  capi- 
tal of  tliis  nature  (for,  as  one  of  our  distinguished  colleagues  who 
is  a  pailisan  of  the  fund  has  well  said,  speculation  always  succeeds 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  401 

in  findinc:  an  open  door  aiul  n  locus  staiuli)  it  Avill  be  owned  tliat  our 
;i]>preh('nsions  can  not  he  regarded  as  excessive. 

28,  It  has  heen  ai-<iiKHh  as  ai^ainst  our  point  of  A'iew,  that  the  sys- 
tem whose  adoi)tion  we  reconnnend  is  based  on  currency  contraction, 
which,  if  considerable,  may  occasion  most  hurtful  results,  and  in 
support  of  this  ai'gument  we  have  been  invited  to  contemplate  the 
example  of  British  India,  whose  government  lamented  with  all  the 
emphasis  permissible  in  oIKcial  documents  the  evils  accruing  to  the 
people  of  India  in  consequence  of  the  currency  contraction,  which  it 
is  affirmed  had  to  be  resorted  to  in  order  to  raise  the  rupee  to  the 
level  which  the  British  legislator  had  fixed. 

AYe  might  say  nnich  as  to  what  happened  in  British  India  in  this 
connection,  for  there  are  not  lacking  solid  grounds,  also  sanctioned 
by  official  documents,  to  believe,  on  the  one  hand,  that  the  improve- 
ment Avhich  occurred  there  in  international  exchange  rates  -was  not 
due  exclusively  to  the  contraction  or  rarefaction  of  the  currency,  but 
also,  in  no  small  degree,  to  other  general  circumstances  which  led  to 
increased  offers  of  gold  and  which  fully  and  clearly  bear  out  the  eco- 
nomical ])rinciples  expounded  l)v  us  in  the  foregoing  paragraphs; 
and,  on  the  other  hand,  that  the  high  rates  of  bank  discount  which 
were  especially  noticeable  in  1898  and  A^hich  the  Indian  government 
attributed  solely  to  a  scarcity  of  the  circulating  medium,  had  oc- 
curred in  previous  years  and  Avere  probably  due  to  famine  and  pes- 
tilence, which  in  that  country  constitute  a  periodical  calamity 
deranging  all  conditions. 

We  will  not  make  these  assertions  w^ithout  proof,  and  we  take 
leave  here  to  copy  the  passages  bearing  on  the  point  from  the  very 
noteworthy  and  imjiortant  report  rendered  in  181)8  by  the  celebrated 
committee  of  which  the  chairman  was  Sir  Henry  H.  Fowler.  The 
passages  in  question  are  as  follows : 

"  In  the  first  place  we  desire  to  point  out  that  it  has  not  been 
proved  that  the  rise  in  the  value  of  the  rupee  since  1894-95  is  due 
solely  to  relative  contraction  of  the  Indian  currency,  and  it  may  be 
that  it  is  not  due  mainly  to  this  cause.  It  is  not  certain  that  there 
has  been  any  contraction  of  the  Indian  currency  which  has  mate- 
rially affected  the  exchange,  though  it  may  not  unreasonably  be 
inferred  that  there  must  have  been  some  contraction  and  that  such 
contraction  lias  had  some  influence  on  the  exchange  value  of  the 
rupee.  On  the  other  hand,  there  are  causes  other  than  contraction 
of  the  currency  which  affect  the  value  of  the  rupee  and  the  exchange 
with  London.  Large  borrowing  in  London  on  account  of  India, 
reduction  of  the  drawings  of  the  secretary  of  state,  an  increase  in  the 
exports  from  India  unaccompanied  by  an  equivalent  increase  in 
imports,  as  well  as  a  general  rise  in  gold  prices,  would  all  affect  the 
rate  of  exchange  with  India,  though  it  is  quite  impossible  to  estimate 
the  relative  im])ortance  of  these  factors  among  themselves  or  the 
amount  of  their  influence  on  exchange  as  compared  with  the  effect  of 
a  contraction  of  the  cunvncy  or  to  state  the  precise  degree  of  influ- 
ence Avhich  any  or  all  of  tli(>m  have  had  on  any  j)articular  alteration 
in  the  exchange.  Noi-,  on  the  otliei-  hand,  is  it  certain  that  the 
unu.sually  low  rate  of  exchange  that  j)revailed  in  1891-95  was  due 
solely  to  a  i-ehilixc  redundancy  of  the  Indian  ciun'ncy.     The  closing 

S.  Doc.  128,  58-3 26 


402  GOLD    STANDARD    IN    INTERN AIIONAL    TRADE. 

of  the  Indian  mints  necessarily  brought  into  phiy  many  disturbing 
influences  which  may  have  affected  1804-95. 

"  Since  the  mints  were  closed  there  has  also  been  large  borrowing 
on  Indian  account,  and  there  have  been  in  some  years  large  reductions 
below  the  normal  amount  in  the  public  remittances  from  India,  while 
fluctuations  have  been  experienced  in  the  foreign  trade  of  India  due 
to  famine  and  plague  as  well  as  to  other  causes.  All  these  causes 
must  at  different  times  have  affected  the  exchange  either  favorably 
or  unfavorably. 

"■  Another  influence  which  nnist  have  had  a  favorable  effect  on  the 
Indian  exchange  is  the  reduction  in  the  imj^orts  of  silver  due  to  the 
closing  of  the  mints.  The  average  yearly  net  import  in  the  three 
years  preceding  the  closing  of  the  mints  was  43,133,078  ounces  of  the 
value  of  Ex.  12,020,296;  and  for  the  three,  years  ending  1898-99  the 
average  net  imjiort  Avas  31,126,376  ounces  of  the  value  of  Ex.  6,103,431. 

"  In  the  face  of  the  facts  we  have  just  stated,  Ave  are  unable  to 
accept  without  qualification  the  opinion  that  the  rise  in  the  value  of 
the  rupee  since  1894-95  has  been  due  wholly  or  mainly  to  a  relative 
contraction  of  the  Indian  currency.  We  are  not  prepared  to  say 
that  the  contraction  of  the  Indian  currency  has  not  been  an  impor- 
tant factor  in  the  rise  of  the  Indian  exchange,  but  so  long  as  the  facts 
of  the  case  are  surrounded  by  so  much  obscurity  Ave  consider  that  it 
Avould  be  unsafe  to  base  action  of  so  drastic  a  character  on  this 
assmnption. 

*■'  If  it  be  the  case  that  the  rise  in  the  A^alue  of  the  rupee  since 
1894-95  is  not  due  AAdiolly  or  mainly  to  the  relative  contraction  of  the 
Indian  currency,  it  folloAvs  that  an  additional  contraction  of  that 
currency,  produced  artificially  by  the  AvithdraAval  of  rupees  in  the 
way  jiroposed  by  the  goA^ernment  of  India,  miglit  not  have  so  much 
effect  in  strengthening  exchange  as  the  government  of  India  be- 
lieved; and  though  Ave  accept  in  principle  the  proposition  that  a 
reduction  in  the  number  of  rupees  tends  to  increase  the  value  of  the 
rupee,  we  are  not  prepared  to  admit  tliat  such  effect  must  necessarily 
be  direct  and  immediate;  nor  are  Ave  satisfied  that  such  reduction, 
carried  out  on  a  large  scale  and  Avithin  a  limited  period,  might  not 
aggraA^ate,  if  it  did  not  produce,  a  period  of  stringency  in  the  Indian 
money  market. 

"  Dealing  first  Avith  the  question  of  discount  rates,  it  Avill  be  suffi- 
cient to  remark  that  the  anticipations  of  increasing  stringency  haA'e 
not  been  verified  during  the  recent  busy  season.  Whereas  the  mini- 
mum rate  of  the  Bank  of  Bengal  Avas  10  per  cent  on  6th  of  January, 
1898,  rising  on  24th  of  Februarv  to  12  per  cent  (at  Avhich  figure  it 
stood  until  the  27th  of  April,  1898)  and  did  not  fall  below  10  per 
cent  until  the  16th  cf  June,  1898,  the  ]-ate  for  tlie  busy  season  of 
b898-99  has  never  exceeded  7  per  cent,  and  this  though  the  total 
volume  of  India's  sea-borne  foreign  trade  exceeded  I\x.  210,000,000  in 
1898-99,  as  against  (under)  Ex.  199,000,000  in  1897-98. 

"  While  it  may  be  questioned  whether  baidving  arrangements  in 
India  might  not  Avith  advantage  be  strengihened  and  adjusted  to  the 
growing  re(]uirements  of  Indian  trade.  Ave  can  not  doubi  that  one  of 
the  main  causes  of  the  stringency  of  1897-98  Avas  the  re\'ersal  (ueces- 
sitiitcd  by  tiie  exceptional  cii'cunistances  of  India  at  the  time)  of  the 
relations  of  the  government  of  India  and  the  money  market  in  the 


GOLD    STANDARD    ITST    INTERN ATTONAL    TRADE.  403 

jiiituinii  of  1SJ)7.  Ill  ordinai'v  veiii's  (lie  covoriiincnl  is  ahlo,  tlirougli 
llu>  sale  of  council  bills  and  lclci>rai)liic  transfers,  (o  place  largi^  sums 
at  the  disposal  of  the  money  market  throughout  the  autumn  and 
winter.  Thus,  during  the  last  four  months  of  1894,  the  bills  and 
transfers  sold  by  the  secretary  of  state  amounted  to  Rx.  8,052,000:  in 
1895,  for  the  same  period  of  the  year,  the  amount  was  Rx.  9,888,000; 
in  180(>  the  amount  was  Rx.  (),d5(),000.  ]')ut  in  1897,  owing  to  the 
depletion  of  (he  balances  of  the  goveriuncMil  of  India,  brought  about 
by  expenditure  on  famine  relief  and  military  o})erations  and  by  fail- 
ing revenue,  the  secretary  of  state  was  unable,  from  the  1st  of  Sep- 
teml)er  to  the  15(h  of  November,  to  oli'er  bills  or  transfers  for  sale 
and  was  compelled  to  purchase  drafts  on  India  for  Rx.  1,000,000. 
Thus,  during  the  last  four  months  of  1897,  the  amount  placed  at  the 
disj^osal  of  the  Indian  money  market  in  the  presidency  towns  in  con- 
sequence of  the  remittance  transactions  of  the  government  was  only 
Rx.  382,700,  or  Rx.  5,724,200  less  than  the  year  before. 

''  It  nuist  not  be  forgotten  that  high  discount  rates  were  not 
unknown  in  India  under  the  system  of  open  mints.  For  example, 
the  bank  rate  reached  12  per  cent  in  April,  1890  (in  wdiicli  year  the 
rate  did  not  fall  below  10  per  cent  from  the  10th  of  Februar}^  to  the 
24th  of  April),  while  in  1889  12  per  cent  was  quoted  continuously 
from  the  21st  of  February  to  the  28th  of  March,  the  rate  not  falling 
below  10  per  cent  from  the  17th  of  January  to  the  11th  of  April  of 
that  year.-'" 

29.  There  is  therefore  good  ground  for  not  accepting  as  axiomatic 
the  twofold  statement  that  the  enhancement  of  the  value  of  the  rupee 
in  British  India  was  due  exclusively  to  currency  contraction,  and 
that  the  contraction  in  question  was  exclusively  responsible  for  the 
very  high  rates  of  bank  discount.  In  any  case,  we  may  be  allowed  to 
observe  that  the  circumstances  under  which  India's  currency  reform 
was  affected  were  exceptionally  adverse ;  for,  though  the  conventional 
gold  value  which  it  w^as  sought  to  give  to  the  rupee  was  not  far 
removed  from  its  bullion  value  at  the  time  when  the  reform  was 
decreed,  the  effect  on  the  silver  nuirket  of  the  closing  of  the  Indian 
mints,  coinciding  as  it  did  with  the  repeal  of  the  Sherman  act  in  the 
United  States,  was  truly  disastrous,  causing  a  decline  of  the  white 
metal  without  precedent  initil  then.  In  the  first  volume  published  b\ 
the  monetary  commission  under  the  heading  of  "  Data  for  the  Study 
of  the  Monetary  Question  in  Mexico  "  may  be  found  a  very  interest- 
ing paper  by  the  American  economist,  Mr.  Piatt  Andrew,  on  India's 
currency  reform,  accompanied  by  a  table  and  diagram  which  illus- 
trates very  strikingly  the  point  which  we  are  considering.  We 
would  for  the  sake  of  brevity  refer  the  reader  thereto.  We  are  far 
from  advising  such  high  aspirations  here,  as  will  be  seen  later  on; 
and  it  is  therefore  fair  to  hope  that  our  difficulties  will  i)e  considerablv 
less.  Nevertheless,  inasmuch  as  it  is  impossible  to  forecast  with  any 
hope  of  certainty  the  future  course  of  events,  especially  in  regard  to 
that  all-important  point — the  future  gold  price  of  silver — we  can  not 
deny  the  possibility  of  conditions  arising  which  would  necessitate  a 
resort  to  special  measures  which  were  not  adopted  in  India.  We  may 
be  permitted  to  repeat  that  what  we  desiderate  is  that  the  interests 


«  Rei>orl  ill  (inestioiis  Xos.  21,  22,  23,  45,  and  Jd 


404  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

involved  shall  bo  allowed  free  scope,  and  shall  not  be  disturbed  nor 
interfered  with  unless  adverse  agencies  arise  which  it  may  be  neces- 
sary to  remove  or  counteract. 

30.  In  the  respectable  and  erudite  ojjinion  given  by  one  of  our 
enlightened  colleagues,  Lie.  Joaqiun  D.  Casasus,  it  is  affirmed  that 
currency  contraction  Avill  require  a  long  time  to  make  itself  felt  hc^re, 
and  will  even  prove  inefficacious  to  stabilize  exchange  in  the  Republic; 
or,  in  other  words,  to  enhance  the  gold  value  of  our  coiiuige,  for  four 
reasons,  which  it  becomes  necessary  to  examine  were  it  only  for  the 
Aveight  which  the  mere  name  of  Air.  Casasus  gives  to  any  opinion 
expressed  b}^  him.     Mr.  Casasus  says  in  this  respect: 

"  The  suspension  of  the  free  coinage  of  silver  would  not  suffice  to 
stabilize  international  exchange: 

"  1.  Because  Mexico,  despite  the  progress  Avhicli  it  has  achieved, 
absorbs  annually  a  very  slight  quantity  of  coin,  and  therefore  the 
enhancement  of  the  value  of  the  circulating  medium  would  have  to 
be  the  work  of  a  great  many  years. 

"  2.  Because  in  Mexico  a  scarcity  of  currency  Avould  be  more  than 
compensated  by  an  increased  coefficient  of  the  rapidity  of  its 
circulation. 

"  3.  Because,  although  Mexico  produces  gold,  there  is  no  gold  in 
circulation  and  no  stocks  of  that  metal  accumulated  in  the  banks. 

"4.  Because  ]\lexico  has'an  adverse  trade  balance  and  only  settles 
same  by  means  of  the  foreign  capital  that  seeks  investment  in  the 
country." 

The  first  pro]:)Osition  is  based  on  monetary  statistics,  wdiich  seem 
to  prove  that  between  the  years  1877-78  and  1901-2  the  additions 
to  the  circulating  medium  of  Mexico  only  averaged  about  $5,000,000 
per  annum.  Granting  that  these  figures  are  accurate  (though  it 
would  not  be  impossible  to  question  them),  and  granting  also  that 
those  additions  are  less  than  the  normal  additions  in  other  countries 
in  proportion  to  the  population  ( which  is  a  point  that,  owing  to  lack 
of  time,  we  have  been  unable  to  determine  by  the  examination  of  for 
eign  statistics) ,  the  phenomenon  is  still,  in  our  opinion,  far  from  being 
conclusive,  for  it  fails  to  take  into  account  the  fact  that  since  1882 
the  use  of  bank  notes,  which  formerly  circulated  on  an  extremely 
limited  scale  and  that  only  in  the  City  of  Mexico,  has  sprung  up 
among  us.  That  year  witnessed  the  foundation  of  our  foremost  insti- 
tution of  credit — the  National  Bank,  and  of  the  Mercantile  Bank, 
which  was  consolidated  with  the  former  in  1884.  The  old  London 
Bank  of  Mexico  and  South  America,  transformed  into  the  present 
Bank  of  I^ondon  and  Mexico,  has  expanded  considerably.  Undei- 
the  law  of  JNIarch  10,  180(),  the  small  local  banks  which  i>reviously 
existed  have  acquired  a  legal  status,  and,  above  all,  the  State  banks 
have  multiplied  to  such  an  extent  that  it  may  be  said  that  there  is 
now  no  State  in  the  Federation  that  has  not  its  bank,  not  to  speak  of 
the  mnnerous  bi-anches  which  the  National  Bank  of  Mexico  and  the 
iiauk  of  London  and  Mexico  have  established.  iVs  was  natural,  espe- 
cially in  N'iew  of  (he  fact  that  liilherto  the  banks  of  issue  of  the 
Kcpiiblic  liaxc  been  I'orlunalc  enough  lo  avoid  all  stumbling  blocks 
in  their  palh,  (he  use  of  bank  notes  has  Ixn'ome  very  genei-al,  rej)lac- 
ing  (()  a  large  e\i<'n(  (he  use  of  silv(^r  coin.  The  vei-y  fidl  banking 
statistics  |)rei)are(l  by  (he  execidive  board  of  (he  mone(ary  c-onnuis- 
sion,  and  which  will  be  issued  in  a  few  days  (perhaps  simultaneously 


(iOLD    STANDAKJ)    IN    INTERNATIONAL    TRADE. 


405 


with  this  report).  (IciiionstiMlc  this  fad  in  all  its  interest inji;  details. 
Mere  \\«>  only  liixc  tlie  li<xiires  in  i-e<j:ar<l  to  the  stock  of  metallic 
money  held  hy  tin-  hanUs  on  DecemUer  :>1  of  each  of  the  years  men- 
tioned, the  note  circnlation  on  same  ilate.  and  the  difference  between 
the  two: 


Year. 


Cash  hold- 
ings. 


Note  circula- 
tion. 


Differences. 


1882.. 
1883.. 
1884.. 
188.")... 
1886... 
1887.. 
1888.. 
1889.. 
1890.. 
1891.. 
1892... 
18iW.. 
1894... 
1895.. 
1896. . 
1897... 
1898.. 
1899... 
19(X1.. 
1901... 
1902... 
1903" 


Si,a50, 

2.251, 
4,495. 
5,()]5, 
8,7.53, 
12.479, 

ir.Sli;-), 

I.-.,  ISS, 

i;,;-'9i, 
17,:il5, 
]7,s7:j, 
211,  l;i(i, 
»l,72l. 


:>S.;V)4, 
42.9-17, 
;U,275. 
:is,f^)4. 

51,:i:')7, 

4'.i,:!'.i4, 
50,213, 
54,G0:l 
55,404, 


722. 28 
.534.  .50 
003. 28 
WA  :i5 
fti2. 75 
(Hit;.  75 

i4(;.2i 

14S.2S 
tiliO.  14 
922. 37 
S(i7.(>5 
2.SS.  18 
142.  78 
437.  7S 
34K.07 
390.72 
813.57 

7:io.7(> 
7t;i.(i3 
4(is.;3 

029. 82 

sm.si 


$3,194, 
2,23«, 
5,174, 

(),275, 
11,245. 
13,9,sl, 

i.s,'.)r9, 

.20.4113, 
22,973, 
,23,(i2S, 
25,  :.^i.H, 
24,5S1. 
2S,>.m<), 
33,431), 
37,9(17, 
44,  WIS, 
54, 375, 


\'.W 


(14, ( 
71,- 
80, 145 
84,272 


419.00 
897.  IX) 
Oti9.tK) 
5.59.  (H) 
491. («) 

,5;fl).(n) 

.529.  (H) 
919.  25 
!K)2.50 
728. 99 
7(50. 85 
9(16. 97 
(182. 78 
315.. 57 
105. 00 
252. 75 
7(59. 25 
sa>.  .50 
4(;4. 75 
rm.'>i) 
227. 00 
,796.25 


Sl.im, 

E14, 

679, 

659, 

2,492, 

1,.5(I2. 

1,114. 

5,215, 

5,682, 

6,312, 

7,424, 

4,461, 

El, 7.51, 

E5,115, 

E4,980, 

10,532, 

15,720, 

11,8:«, 

14,(117, 

15,044, 

31,482, 

28,867, 


696. 72 
637.50 
065. 72 
895. 65 
4(58. 25 
472. 25 
3^2. 79 
770.97 
242. 36 
806. 62 
893. 20 
678. 79 
460.  (X) 
122.21 
243. 07 
862.03 
9,55. 68 
101.74 
703. 72 
217.77 
197. 18 
930.44 


"The  figures  for  this  year  are  only  up  the  end  of  October. 
E  means  excess  of  cash  holdings  over  note  circulation. 

The  table  shoAvs,  as  Avas  theoretically  to  be  expected,  that  both  the 
note  circnlation  and  the  difference  between  that  circulation  and  the 
stock  of  silver  have  increased  snbstantially,  and  if  the  matter  be 
rightl}^  regarded,  that  increase  constitutes  in  reality  as  effective  an 
addition  to  our  circulating-  medium  as  if  it 'had  consisted  of  hard 
silver  coin. 

To  a  certain  extent  this  same  fact  affords  solid  ground  for  combat- 
ing the  second  of  the  pro])ositioiis  which  we  are  c(msidering.  It  is 
indeed  just  possible  that  greater  rapidity  might  be  imparted  to  our 
circulation,  lint  if  we  consider  the  increased  use  that  is  made  of 
i>ank  notes;  that  the  note  issues  of  most  of  the  local  banks  have  for 
months  past  almost  reached  their  authorized  limit  and  are  still  close 
thereto;"  that  finally  the  use  of  checks  and  other  instrumentalities 
of  credit,  formerly  almost  unknown,  has  become  very  general  owing 
to  the  growing  familiarity  of  the  people  with  banking  methods,  it 
must  be  owned  that  our  circulation,  considering  the  volume  of  our 
industrial  and  mercantile  transactions,  has  already  attained  a  consid- 
erable degree  of  celerity  and  that  it  is  not  likely  that  it  can  be  quick- 
ened in  future  in  the  same  proportion  as  in  the  past.  Nay,  it  might 
even  be  considered  wise  to  advise  the  (iovernment  to  look  into  the 
question  of  note  circulation,  owing  to  the  influence  which  it  may  exer- 
cise upon  the  solution  of  the  monetary  problem  if  left  in  its  present 
state. 

We  certainly  will  not  offer  any  such  suggestion,  though  only  for  the 
fundamental  reason  that  this  i)hase  of  the  banking  question  was  not 
among  the  {)oints  about  which  we  were  consulted.  We  do,  however, 
think  it  fair  to  state  that,  in  view  of  the  proportions  which  the  note 


a  See  bank  stateiueuls  lur  October  ;>!,  1003. 


406  GOLD   STANDARD    IN    INTERNATIONAL    TRADE. 

circulation  has  reached,  it  is  not  likely  to  expand  further  nor  to  cur- 
tail the  country's  capacity  to  absorb  a  larger  quantity  of  silver  coin 
than  it  already  holds. 

The  third  reason  adduced  by  Mr.  Casasus  does  not  seem  to  us  to  have 
any  bearing  on  the  point  at  issue.  It  is  quite  true  (and  we  have 
already  stated  the  fact  in  our  No.  7.)  that  "  although  Mexico  produces 
gold,  there  is  no  gold  in  circulation  and  no  stocks  of  that  metal  accu- 
mulated in  the  banks;"  but  this  fact  does  not  seem  to  us  to  constitute 
the  least  warrant  for  the  proposition  that  the  limitation  of  the  quan- 
tity of  silver  coin  in  circulation  is  incapable  of  bringing  about  an 
enhancement  of  its  value  in  gold,  which  is  the  contention  of  Mr. 
Casasus.  On  the  contrary,  if  there  is  no  gold  in  circulation  'that  fact 
will  contribute  to  strengthen  the  silver  coinage,  which  thus  will  not 
have  to  overcome  a  poAverful  rival.  This  is  precisel}^  the  reason  why 
we  recommend  that  gold  should  not  be  coined  at  once,  as  will  be  seen 
shortly. 

In  regard  to  the  fourth  reason,  which  involves  our  trade  balance,  we 
have  dealt  with  it  in  our  No.  26,  and  we  do  not  think  it  necessary  here 
to  repeat  what  we  have  said. 

31.  Our  esteemed  colleagues  who  favor  the  immediate  creation  of 
the  gold  reserve  fund  have  dwelt  at  such  length  on  the  dangers  of 
currency  contraction  that  we  can  not  refrain  from  returning  to  the 
subject  to  the  extent  of  making  two  simple  observations. 

The  first  is  that  the  currency  contractions  wdiich  we  now  suffer  are 
irremediable,  both  because  the  free  coinage  regime  occasions  tempo- 
rary and  unnecessary  inflations  of  our  circulation,  followed  by  an 
exodus  of  the  surplus  of  coined  silver,  and  because  the  brusque  and 
wide  fluctuations  in  the  price  of  that  metal  actuallj^  shut  off  our  banks 
from  the  temporary  introduction  of  gold  capital ;  but,  under  the  ncAv 
regime,  such  capital  will  be  able  to  enter  safely  on  the  same  footing, 
as  in  all  other  civilized  nations,  either  directly  or  in  the  form  of 
credits  to  our  banks,  in  quest  of  the  profits  accruing  from  a  high  dis- 
count rate,  as  soon  as  a  tendency  thereto  becomes  apparent.  If  this  is 
to  occur,  and  w^e  see  no  reason  why  it  should  not  occur,  as  soon  as  the 
monetary  situation  of  the  Eepublic  shall  afford  an  assurance  that  such 
capital  may  be  withdrawn  or  refunded  without  fear  of  serious  losses 
due  to  the  oscillations  of  exchange,  it  w^ould  seem  that  there  is  no 
ground  to  suppose  that  the  scarcity  of  the  circulating  medium  will  go 
to  dangerous  lengths. 

Finally,  the  ojieration  of  the  gold  reserve  fund,  wdiich  we  are  now 
considering,  would  also  involve  the  AvithdraAval  from  circulation  of  a 
volume  of  silver  coin,  varying  according  to  the  amount  of  the  fund. 
So  that  if  curren(;y  contraction  constitutes  an  evil,  that  evil  will  be 
rather  aggravated  than  eliminated  by  the  creation  of  the  reserve  fund. 

32.  It  has  also' been  argued  that,  since  the  desideratum  is  to  impart 
a  fixed  value  in  gold  to  the  currency,  the  Government  ought  actually 
to  guaraiilce  that  value  by  making  the  silver  coins  interchangeable 
for  gold  at  Uic  legal  parity  and  at  the  will  of  their  possessor.  In  our 
ojunion  this  reasoning  is  Avholly  erroneous.  The  (Jovernment's  guar- 
anty in  the  matter  of  coinage  is,  first,  that  each  coin  really  contains 
lhe'(iuantity  of  metal  ])rovi(led  by  law,  and  secondly,  that  the  Gov- 
ernment, which  issued  il,  will  in  turn  receive  it  in  payments  made  to 
it  on  the  same  terms  as  attended  its  issuance.  Moreover,  if,  in  accord- 
ance with  the  plan  which  we  propose,  a  silver  coin  shall  bo  issued  in 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  407 

exchange  for  a  quantity  of  gold  of  <;rcator  vahie  than  the  silver  con- 
tained in  such  coin,  it  w\\\  be  a  moral  obligation  on  the  pnrt  of  the 
Government  not  to  convert  the  dilh^rence  accumidating  In  iis  eotfers 
into  a  source  of  fiseal  profit,  but  to  keej)  it  in  oi-der  to  ui)hold  the 
enhanced  value  of  the  coin  Mhich  it  has  issued,  for  otherwise  public 
coniidence  would  easily  be  lost.  Until  such  time  as  this  contingency 
arises,  that  is  to  say,  until  such  time  as  j^rivate  persons  shall  deliver 
gold  in  exchange  for  silver  coin,  the  creation  of  an  obligation  on  the 
part  of  the  State  to  pay  out  gold  in  exchange  for  circulating  silver 
coins  Avould  constitute  a  privilege  in  favor  of  the  hohlers  thereof  for 
which  the  rest  of  the  nation  would  have  to  pay;  it  would,  in  fact,  be 
equivalent  to  a  simple  and  unadulterated  introduction  of  the  gold 
standard  with  gold  in  circulation,  for  assuredly  no  holder  of  silver 
coin  would  fail  to  change  same  for  gold  if  the  matter  depended  merely 
on  his  own  will  and  pleasure. 

33.  "We  also  think  that  the  basis  of  facts  which  have  been  available 
to  us  for  studying  the  monetary  problem,  though  sufficient  to  enable 
us  conscientiously  to  advise  a  change  from  the  present  regime,  which 
is  sapping  the  strength  of  the  nation  and  sacrificing  all  its  legitimate 
interests  for  the  benefit  of  the  persons  who  control  the  silver  mining 
industry  and  the  export  industries,  do  not  enable  us  to  forecast  the 
exact  point  which  the  effects  of  the  closing  of  the  mints  will  reach,  for 
many  of  the  data  necessary  for  an  accurate  forecast  of  this  nature  are 
unknown  to  us.  In  the  first  place  we  are  ignorant,  as  we  have  already 
said,  of  the  <piantity  of  coin  in  circulation;  we  are  also  ignorant  of 
the  exact  degree  of  elasticity  which  our  circulation  has  acquired  or  is 
capable  of  acquiring  as  a  consequence  of  the  growing  expansion  of 
institutions  of  credit,  and  especially  of  the  ali'eady  very  considerable 
use  of  bank  notes.  And  the  worst  is  that  under  the  present  regime  of 
free  silver  coinage,  of  which  the  first  result  is  to  determine  brusque 
and  continual  fluctuations  in  the  quantity  of  coin  in  circulation,  it  is 
impossible  to  arrive  at  even  a  reasonable  approximation  to  the  facts  in 
regard  to  this  and  other  important  factors  of  the  monetary  problem. 

34.  It  is,  therefore,  necessary  in  our  opinion  to  modify  existing  con- 
ditions by  closing  the  mints;  but  to  go  beyond  that  point,  to  endeavor 
all  at  once  to  stabilize  exchange  by  methods  so  costly  and  so  fraught 
Avith  serious  dangers  as  is  the  immediate  creation  of  a  considerable 
reserve  fund  in  gold,  seems  to  us  hardly  wise  or  prudent. 

For  these  reasons  our  plan  of  reform  only  suggests  the  immediate 
cessation  of  the  free  coinage  of  silver.  If  after  the  lapse  of  a  certain 
period  of  time  the  measure  in  question,  supplemented  by  other  indi- 
rect measures  tending  in  a  natural  manner  to  the  attainment  and 
maintenance  of  stability  of  exchange,  does  not  suffice  to  bring  about 
the  enhancement  of  our  coin,  it  will  be  time  for  the  Government  to 
consider  whether  it  ought  to  ask  the  country  to  bear  the  sacrifice  neces- 
sary for  the  creation  of  a  gold  i-eserve  fund,  in  order  to  bring  a  deci- 
.sive  influence  to  bear  on  the  internal  marlcet.  To  act  otherwise, 
would,  if  Ave  may  be  excused  the  frankness  of  our  ex})ression,  be  to 
yield  to  an  impatience  that  is  incompatible  with  the  delicate  reserA'e 
and  the  luitural  caution  that  ought  to  be  exeicised  in  acts  that  affect 
the  vital  interests  of  the  social  organism. 

35.  Tlie  fear  has  been  expressed  that,  imless  the  gold  reserA'e  fund 
is  created,  the  necessity  of  settling  our  trade  balances  Avill  lead  us  to 
the  extreme  of  having  to  export  our  silver  coins  under  the  ncAv  regime 


408  GOLD    STANDARD    IN    INTERNATIONAL    TRADK. 

at  their  bullion  value,  as  is  the  case  at  present.  We  regard  these  fears 
as  simph'  fantastic,  unless  it  be  held  that  economic  laws,  which  else- 
where have  produced  and  continiie  to  produce  given  results,  will  not 
produce  those  results  here,  and  that*'  Mexico  is  still  the  land  of  anom- 
alies," as  used  to  be  said  in  times  when,  owing  to  a  very  imperfect 
observation  of  facts  and  social  phenomena,  many  persons  failed  to 
understand  that  the  premature  and  hasty  adoption  of  principles  and 
laws,  embraced  and  proclaimed  by  nations  far  more  advanced  than  we 
were  and  also  very  differently  situated,  could  not  be  followed  by  the 
same  consequences  here  as  in  those  other  nations.  Wherever  the  free 
coinage  of  silver  has  been  suspended  or  abolished  without  a  single 
exception,  as  far  as  we  know,  the  silver  coinage  has  been  enhanced 
above  its  bullion  value,  and  in  this  respect  we  consider  worthy  of 
special  mention  the  unique  instance  of  the  paper  currency  of  Austria- 
Himgary,  which,  though  redeemable  only  in  silver,  attained  a  higher 
valuation  than  the  bullion  value  of  the  coin  for  ^^'hicll  it  stood,  due 
solely  to  the  principle  of  lindtation  (not  contraction  or  scarcity)  in 
the  issues  of  the  paper  in  question. 

The  experience  of  Spain  is  also,  in  our  opinion,  singularly  sugges- 
tive. The  only  coin  in  circulation  in  that  country  is  unlimited  legal 
tender  silver,  for  gold,  of  which  a  relatively  small  quantity  is  held  by 
the  Bank  of  Spain,  is  beyond  the  reach  of  the  public  and  constitutes 
no  sort  of  guaranty  for  the  circulating  coin.  On  the  other  hand,  the 
Government  of  the  Peninsula,  in  the  distressing  days  of  the  late  w^ar, 
coined  positively  enormous  quantities  of  silver  in  order  to  avail  itself, 
for  revenue  purpose,  of  the  difference  between  its  bullion  value  and  the 
value  ascribed  to  it  by  law  after  coinage;  and  this  fact  has  made 
exchange  adverse  to  Spain,  as  was  to  be  expected  and  is  noW'  officially 
affirmed  by  the  most  conspicuous  statesmen  of  that  country.  Never- 
theless exchange  has  not  touched  nor  even  approached  the  level  of  the 
coinage's  bullion  value,  and  this,  in  the  opinion  of  the  economists  and 
statesmen  of  Spain,  is  due  wholly  and  exclusiveh'  to  the  fact  that  the 
Government  reserves  to  itself  the  right  of  coining  silver. 

36.  There  is,  therefore,  in  our  opinion  no  room  for  doubt  that  when 
the  new  regime  shall  once  have  been  introduced  our  coinage  will 
acquire  in  internal  markets  a  value  in  excess  of  its  bullion  value;  that, 
in  consequence,  its  holders  will  have  a  definite  interest  in  not  export- 
ing it,  for  they  will  understand  that  they  would  have  to  lose  the  bene- 
fit of  that  extra  value  abroad :  and  that,  in  a  word,  the  mere  closing 
of  the  mints  to  the  free  coinage  of  silver  will,  to  a  greater  or  less 
extent,  cause  a  disassociation  between  the  coinage  value  and  the  bul- 
lion value  of  the  new  peso  which  will  prevent  that  peso's  exportation. 
Only  one  circumstance  could  produce  a  different  result,  viz.,  an 
extreme  superabundance  of  coin,  and  tliough  there  is  every  reason  to 
believe  that  there  is  no  such  superabundance,  still,  if  the  contrary 
were  the  case,  that  is  to  say,  if  it  should  be  found  that  the  country  was 
])ossessed  of  a  much  larger  quantity  of  coin  than  is  needed  for  internal 
exchanges,  then  it  Avould  be  highly  advantageous  were  the  excess  to 
lea\'e  the  country  and  go  to  the  melting  pot  at  its  bullion  value,  with- 
out loss  to  its  holders  and  without  imj)()sing  on  the  Kepublic  the  sacri- 
fice of  redeeming  it  in  gold  at  the  legal  parity.  There  would  soon 
Ix'come  manifest  a  tendency  to  the  ratio  so  often  alluded  to  by  us 
between  the  silver  coinage  and  gold,  giving  rise  to  an  enhancement  in 
the  value  of  that  coinage  and  then  individual  interests,  which  are 


(lOLI)    STANDARD    IN    INTKRNATIONAL    TRADE.  409 

iiiorr  iU'livc  and  vi^ihuU  (hiiii  Ihc  best  niul  most  zealous  oovcninuMii. 
and  wliich  woiikl  have  imich  at  slake  in  the  success  of  the  iv form, 
would  not  he  long  in  renderino-  it  eilective  without  perturbations  and 
without  shocks." 

:^7.  To  sum  up,  in  concludiuo;  this  j^erhaps  already  too  lengthy  por- 
tion of  our  report,  we  will  say  :  That  primarily  we  trust  to  the  closing 
(>f  the  mints  to  the  free  coinage  of  silver  to  bring  about  the  success  of 
the  i)lan  of  reform  which  we  have  takeu  leave  to  propose.  If  that 
measure  suffices  immediately  to  iusure  the  legal  parity,  which  Ave 
doubt,  well  and  good.  If  it  does  uot,  we  at  least  feel  sure  that  it  will 
at  once,  occasion  an  enhancement  of  the  gold  value  of  the  new  silver 
coin;  that  that  enhancement  will,  to  the  country's  advantage,  be 
gradual  and  progressive,  but  that  if,  owing  to  causes  which  we  can 
not  foresee,  the  oxont  proA'es  otherwise,  then  the  moment  will  have 
arrived  for  creating  a  gold-reserve  fund  in  order  to  hasten  the  attain- 
ment of  parity. 

If  the  nnitter  be  rightly  considered,  this  was  the  course  of  the  Gov- 
ernment of  the  ITnited  States  in  providing  for  monetary  reform  in  the 
Philippines,  for  Congress  did  not  at  once  ordain  the  immediate 
creation  of  the  fund,  but  simply  authorized  the  government  of  the 
islands  to  institute  a  special  fund  for  the  maintenance  of  the  parity 
between  silver  money  and  gold,  and  we,  for  our  part,  suggest  that  the 
legislative  measures  to  be  passed  for  the  execution  of  monetary  reform 
inthe  Republic  should  include  powers  to  the  Executive  to  create  the 
ofold-reserve  fund  wliich  has  occasioned  so  much  discussion.  We  do 
not  think,  as  Avill  be  readily  understood,  that  this  is  like  counseling  the 
(Government  of  the  Republic  to  experiment  with  a  reform  of  doubtful 
results.  On  the  contrary,  Ave  firmly  believe  in  the  practical  efficacy 
of  our  suggestion,  but  recommended  a  prudent  course,  like  that  of  a 
comnumder  in  chief  who,  considering  victory  sure  by  only  using  a 
portion  of  his  forces,  should  decide  not  to  bring  the  wdiole  of  his  army 
into  action,  but  i-ather  to  hold  in  reserve  the  other  portion,  perhaps 
the  best  portion  thereof,  to  be  ready  for  unlooked-for  contingencies, 
not  arrogantly  imagining  that  those  contingencies  may  not  arise 
simply  because  he  can  not  foresee  them. 

B.  Ratio  between  gold  and  sUner  money. — 38.  Before  decreeing 
monetary  reforms  similar  to  that  wdiich  w^e  are  contemplating,  other 
nations  have  carefully  considered  wdiether,  in  closing  their  mints  to 
the  free  coinage  of  silver,  with  a  view^  to  the  adoption  of  the  gold 
standard,  it  was  expedient  to  fix  at  once  the  rate  or  ratio  wdiich  w\as 
sought  to  be  attained  betw^een  the  silver  coins  and  gold.  In  the  tw^o 
instances  that  are  kmnvn  to  us,  Peru  and  British  India,  the  ques- 
tion was  in  reality  answered  in  the  affirmative.  If  this  is  not  done 
in  our  case  the  entire  aim  of  the  monetary  reform  will  be  enveloped 
in  perilous  vagueness,  more  calculated  to  arouse  distrust  and  paralyze 
the  economic  activities  of  the  country  than  to  inspire  confidence  in  the 

«  In  connection  witli  this  point,  viz.,  the  clanger  that  the  new  coin  may  be 
('X|M>rto(l.  it  lias  Iieeii  siii^jiested  tliat  it  would  he  well  to  i)roliiI>it  that  exportation 
liy  law.  This  idea,  which  has  not  heen  exi)ressed  liy  any  nienil)er  of  the  fifth 
siilK-oiuniittee,  was  no  doubt  sui^jiosted  by  the  fact  that  at  various  times  the 
exportation  of  coin  has  been  iirohibited :  but  it  does  not  seem  necessary  to 
refute  the  idea  in  (juestion  specifically,  for  it  is  now  generally  recognized  that  a 
measure  of  this  nature,  besicles  being  vexatious  and  tyrannical,  would  constitute 
a  grave  economical  error,  wliich,  in  vit>w  of  the  culture  we  have  attained,  it 
would  uot  be  permissible  for  us  to  repeat. 


410  GOLD    STANDARD   IJST   INTERNATIONAL   TRADE. 

now  regime,  not  to  speak  of  the  necessity  of  establishing  a  clear  basis 
whereon  new  issues  of  silver  coin  may  and  ought  to  be  made  in  order 
to  meet  the  requirements  of  expanding  transactions.  These  reasons 
have  appeared  to  us  to  be  conclusive,  and,  consequently,  they  have 
moved  us  to  hiy  down  as  the  second  of  the  fundamental  bases  of  the 
IDlan  of  monetary  reform,  that,  when  it  is  enacted,  a  ratio  between 
gold  and  the  new  silver  dollar  shall  be  fixed. 

39.  What  is  that  ratio  to  be  ?  The  fourth  subcommittee,  taking  as 
a  base  the  average  gold  price  of  the  white  metal  from  1803  to  1902, 
ha"s  urged,  with  abundance  of  sound  reasons,  the  expedience  of  adopt- 
ing a  ratio  that  shall  be  not  less  that  1  to  36  nor  more  than  1  to  32. 
This  view  was  combated  by  no  one  except  Mr.  Jose  de  Landero  y 
Cos,  who  expressed  the  belief  that  even  the  latter  of  the  two  ratios  did 
not  leave  a  sufficient  margin  to  insure  the  maintenance  of  the  new  coin 
at  a  higher  value  than  its  mere  bullion  value,  becanse  the  rise  of  silver 
during  the  closing  months  of  the  present  year,  a  rise  characterized 
by  unaccnstomed  firmness,  showed  indications  not  only  of  being  sus- 
tained, but  even  of  being  accentuated,  until  the  relationship  between 
gold  and  silver  should  approach,  or  perhaps  even  attain,  the  ratio  of 
1  to  32. 

40.  For  the  reasons  above  stated,  which  facts  have  continued  to 
sanction  down  to  the  present  time,  it  was  decided  in  order  that  the 
labors  of  the  fifth  subconnnittee  might  have  a  concrete  base,  to  adopt 
hypothetically  the  ratio  between  gold  and  silver  of  1  to  32.  Subse- 
quently the  nndersigned  have  thought  that  it  was  expedient  to  take 
into  account  the  average  gold  price  of  silver  even  during  the  current 
year  and  in  general  for  ten  years  preceding  the  monetary  reform,  and 
this  for  several  reasons,  of  which  the  chief  is  that  it  seems  neither  fair 
nor  politic  not  to  take  into  consideration,  as  far  as  possible,  the  con- 
ditions which  bear  npon  the  present  moment,  for  in  a  question  so 
grave  as  is  the  determination  of  the  precise  point  at  which  exchange 
is  to  be  stabilized  great  care  nnist  be  taken  not  to  wrong  existing  inter- 
ests and  not  to  aggravate  the  situation  of  debtors.  Interests  which 
came  into  existence  in  times  past,  even  in  times  long  past,  are  also 
entitled  to  great  consideration ;  but  inasmnch  as  it  would  be  impos- 
sible to  mete  out  to  all  the  satisfaction  that  they  miglit  desire,  it  must 
be  borne  in  mind  that  interests  of  long  standing  must,  if  they  con- 
tinue to  exist,  have  adjusted  themselves  to  new  conditions  and  are, 
thei'cfore.  to  be  treated  in  the  same  manner  as  interests  of  more  recent 
creation. 

41.  On  the  other  hand,  considering,  as  did  the  fourth  subconnnittee, 
in  its  report  of  Sei)tember  13  last,  that  the  enhanced  value  ascribed  to 
the  new  coin  ought  iu)t  greatly  to  exceed  the  bullion  value  of  that  coin, 
based  on  the  average  of  the  last  ten  years,  we  have  sought  to  impart 
to  our  suggestion  a  givater  degree  of  precision  than  is  implied  in  a 
mere  mnnei-ical  ratio,  which  is  not  ahvays  clear  to  all,  and  thus  we 
resolved  to  adopt  the  formula  contained  in  the  second  base  of  the 
accompanying  |)lan  of  reform,  by  virtue  of  which  the  gold  value  of 
the  new  dollar  will  be  iixed  on  the  basis  of  the  average  gold  i)rice  of 
tlie  Mexican  dollar  in  the  last  ten  years  plus  an  addition  not  to  exceed 
10  per  cent.  'J'he  result  will,  we  believe,  be  api)r()xini:itely  identical 
with  that  suggested  by  (he  fourth  subconnnittee  and  perchance  pos- 
sesses the  advantage  of  greater  clearness  and  precision. 


GOLD    STANDARD    IN    INTERNATIONAL    TKADK.  411 

OTHER  BASES  OF  THE  in.AN  OF  monp:tary  rkfok.m. 

42.  Tlio  two  hiisi's  of  the  plan  oi"  nionotary  ivforiu,  llio  adoption  of 
which  wo  have  taken  leave  to  recommend  and  for  which  we  have 
endeavored  to  give  our  reasons  in  the  foregoing  numbers.  12  to  41, 
are,  in  our  opinion,  fundamental  and  indispensable.  There  are  other 
bases,  however,  which  we  consider  of  im]3ortance  and  foi*  which  the 
i-easons  deserve  to  be  given.  We,  therefore,  now  take  up  this  portion 
of  our  task. 

.1.  CoiniKje  of  gold. — to.  Messrs.  Manuel  Fernandez  Leal  and 
Joaquin  I).  Casasus  who,  as  members  of  the  fifth  subcommittee, 
undertook  to  study  the  question  of  the  expediency  of  the  innuediate 
coinage  of  gold  on  the  hypothetical  basis  above  mentioned,  viz.,  that 
the  ratio  to  be  adopted  between  gold  and  silver  Avould  be  that  of  1  to 
32,  have,  in  a  special  report  wdiich  forms  part  of  the  present  collection 
of  documents,  recommended  that  gold  be  coined  at  once,  unrestrict- 
edly, and  without  charge,  in  pieces  of  five  and  ten  dollars. 

We  must  in  the  first  place  state  that  we  have  adopted  almost  all 
the  conclusions  of  the  important  report  in  question,  and  have  embod- 
ied them  in  the  plan  of  reform  which  we  have  the  honor  to  j^ropose. 
Nevertheless,  we  have  been  unable  to  adopt  two  of  them,  viz.,  the 
immediate  opening  of  the  mints  to  the  free  coinage  of  gold,  and  the 
provision  that  the  coinage  shall  be  free  of  charge. 

44.  The  reasons  for  our  dissent  from  the  former  conclusion  ai-e 
largely  cognate  with  those  which  we  have  expounded  at  length  when 
discussing  the  closing  of  the  mints  to  the  free  coinage  of  silver  and 
the  immediate  creation  of  a  gold-reserve  fund.  If  the  principal 
agency  to  be  employed  in  the  establishment  of  parity  between  silver' 
coins  and  gold  consists  in  supph'ing  silver  wdien  gold  is  offered  there- 
for, it  seems  to  us  absolutely  essential  that  the  actual  circulating- 
medium  should,  during  the  initial  or  transition  period,  consist  solely 
of  silver  coins,  and  that  no  gold  be  coined.  For,  until  parity  is 
attained,  the  following  dilemma  seems  to  us  unavoidable :  Either  gold 
will  not  be  coined  for  circulation,  in  which  case  the  facilities  which 
it  is  proposed  to  provide  will  be  useless,  or  it  will  be  coined  for  circu- 
lation and  will  actually  circulate,  in  which  case  it  will  materially 
interfere  with  the  attainment  of  legal  parit}',  for  no  person  holding 
gold  Avill  be  willing  to  part  with  it  for  silver  currency  at  the  rate 
provided  by  laAv  Avhile  having  at  his  disposal  the  Government's  coin- 
ing machines  to  supply  him  with, a  coin  of  unlimited  legal  tender, 
which  he  will  not  give  up  save  at  a  premium  such  as  is  ingrained 
in  our  commercial  habits  owing  to  the  depreciation  of  the  present 
silver  cui'rency. 

45.  Our  situation  is  not  identical  nor  even  similar  to  that  of  the 
nations  which,  being  und(>r  the  regime  of  the  free  coinage  of  gold  and 
silver,  only  closed  tlieii"  mints  to  the  latter,  so  that  gold  might  not  be 
dislodged  from  circulation  by  virtue  of  the  well-known  economic  law 
enunciated  by  (iresham,  viz.,  that  a  bad  or  inferior  money  drives  out 
a  good  or  superior  money.  Unfortunately,  circumstances  did  not  per- 
mit the  Republic  to  imitate  the  examj^le  of  those  other  nations  at  a 
time  when  gold  used  to  circulate  here  conjointly  with  silver.  At  the 
present  time  all  the  gold  whicli  we  i)roduce,  whether  coined  or  not, 
quickly  goes  abroad  without  performing  here  any  function  as  money. 


412       GOLD  STANDAKD  IN  INTERNATIONAL  TRADE. 

In  order  to  retain  It  hero  and  to  l)rino;  it  back  into  circulation  it  will 
be  necessarVi  in  onr  opinion,  to  ado|)t  special  measures,  so  that  it  wviy 
not  impede  the  appreciation  of  the  silver  coina<i:e,  and  that  when  that 
appreciation  has  been  brought  about  the  yellow  metal  needed  for  the 
internal  circulation  may  not  again  emigrate. 

For  these  reasons  we  have  decided  to  propose  that  the  coinage  of 
gold  be  postponed  nntil  the  legal  parity  to  be  established  between 
that  metal  and  the  silver  coinage  shall  have  been  attained,  or  until 
the  Government  shall  deem  that  gold  may  be  coined  without  com- 
promising that  parity. 

46.  In  regard  to  the  other  point  of  difference,  it  seems  to  us  that 
the  question  as  to  whether  the  coinage  of  gold  ought  or  ought  not  to 
be  free  of  charge  is  rather  fiscal  than  monetary,  and  therefore  outside 
of  our  province.  We  will  say,  however,  that  we  can  not  indorse'the 
proposal  of  Messrs.  Fernandez  Leal  and  Casasus. 

B.  Change  of  our  present  silver  dollar. — 47.  We  consider  that  it  is 
sincerely  regrettable  that  the  monetary  reform  can  not  be  accom- 
plished by  the  mere  closing  of  the  mints  to  free  coinage,  for  the 
necessity  of  striking  a  new  coin  to  take  the  place  of  the  old  traditional 
Mexican  dollar  wall  be  attended  with  difficulties.  Those  difficulties 
are  liable  to  be  of  various  kinds,  and  shortly  we  will  show  how  we 
think  that  they  can  be  overcome.  Just  now  w^e  will  confine  ourselves 
to  demonstrating  the  impossibility  of  allowing  the  present  dollar  to 
remain  in  circulation  if  our  plan  of  reform  is  to  be  adopted. 

48.  The  case  stands  thus:  Based,  as  that  plan  is,  on  the  limitation 
of  the  quantity  of  coin  to  be  used  in  internal  transactions,  it  is 
indispensable  to  change  the  design  of  our  dollar  unless  we  want  to 
have  on  our  hands  a  more  or  less  substantial  portion  of  the  many 
millions  (hundreds  of  millions,  perchance)  of  Mexican  dollars  scat- 
tered over  the  world,  particularly  in  the  countries  of  the  Orient, 
which,  as  is  known,  have  for  centuries  used  them  and  continue  to  use 
them  for  currency  purjjoses.  Perhaps  the  whole  of  that  incalculable 
quantity  of  dollars  which  circulate  abroad  at  their  bullion  value 
would,  when  it  became  known  that  Ave  were  here  endeavoring  to  give 
an  enhanced  value  in  gold  to  our  silver  coinage,  be  returned  to  us, 
and  this  would  constitute  an  insuperable  obstacle  to  the  reform  by 
destroying  a  part,  unquestionably  the  most  important  part,  of  its 
foundation.  This,  therefore,  must  be  prevented,  and  no  measure 
seems  more  conducive  thereto  than  the  adoption  of  a  new  design  for 
the  new^  coin,  although  this  will  assuredly  entail  an  expenditure  of 
Avhich,  owing  to  lack  of  data,  we  have  been  unable  to  estimate  the 
amount,  but  wdiich  will  perhaps  be  from  two  to  three  million  dollars. 

C.  Temporary  proliihition  ogahist  importing  the  present  Mexiean 
dollar. — 49.  Nevertheless,  the  time  that  the  operation  in  question  Avill 
consume,  however  ex])editi()usly  the  woik  may  be  handled,  will 
involve  a  serious  danger,  the  danger  that  during  the  ])eriod  of  transi- 
tion a  greater  oi-  less  (juantity  of  dollai's  may  return  to  the  Republic, 
as  already  exi)lained.  In  order  to  ward  off  this  danger  Ave  would 
offer  the  suggestion  that  a  decree  be  issued  a  suitable  time  in  advance 
prohibiting  the  reimportation  of  Mexican  dollars,  subject  to  the  pen- 
alties provided  for  snniggling,  which  are  sufficiently  severe,  and  go 
in  some  cases  to  the  length  of  im])risonnient,  or  subject  to  such  other 
penalties  as  may  be  consideivd  adequate  to  the  requirements  of  tlie 
case. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       418 

A  measure  of  this  nature,  the  efficacy  of  which  we  have  no  reason  to 
(loiiht,  in  vi(>w  of  (he  carefuhicss  and  ])resent  hinh  morale  of  oui' 
custom-house  aihninistration,  can  not  he  iviiaidcd  in  any  way  as 
unjust  or  ai-hiti'ary.  Our  dolhirs  liave  ever  been  exported  as  merchan- 
dise at  their  bullion  value,  the  lack  of  conunei-cial  relations  between 
ourselves  and  the  Orient  precluding  the  possibility  of  our  having 
sent  them  thither  as  cnri'cncy.  Nothing,  therefore,  obliges  us  to  take 
them  back  as  currency,  for  they  only  possess  that  capacity  and  consti- 
tute a  claim  on  the  faith  of  the  nation  Avhcn  circulating  within  the 
borders  of  the  Republic. 

D.  Duration  of  tlte  period  of  ti'diisHion. — -.50.  Nevertheless,  a  pro- 
hibition of  this  nature  ought  not  to  be,  and  can  not  be,  maintained 
indclinitely,  and  much  less  forever,  without  losing  its  efficacy.  It  will 
always  be  attended  with  danger,  a  danger  Avhich  will  have  to  be  mini- 
mized, and  for  this  reason  it  is  necessary,  as  already  said,  to  change 
(he  design  of  our  coin  and  also  to  abridge  the  period  of  transition  as 
much  as  possible. 

51.  In  order  to  achieve  this  object  recourse  niaj^  be  had  to  various 
measures  of  an  administrative  nature,  which  it  has  not  seemed  neces- 
sary to  us  to  point  out,  including  the  coinage  of  money  abroad,  accord- 
ing to  the  example  set  by  other  nations  which  regularly  and  habitually 
procure  their  supply  of  coin  in  this  manner.  We  have  also  taken 
leave  to  suggest  that  a  portion  of  the  metallic  reserves  of  the  banks 
might  temporarily  be  used,  if  the  banks  are  willing,  and  it  is  to  be 
assumed  they  will  be,  for  the  same  object,  the  banks  receiving  special 
certificates  for  such  portion  of  their  resei'ves  from  the  mints:  but  a 
special  law  would  have  to  be  passed,  modifying  in  this  respect  the 
present  banking  laAv,  in  order  to  authorize  institutions  of  credit  to 
compute  the  certificates  in  question  as  metallic  money  for  the  purpose 
of  compliance  with  the  jiivcept  which  fixes  the  mininnun  propoi'tion- 
ate  amount  in  coin  or  bullion  which  they  must  have  on  hand  in 
comparison  with  their  outstanding  notes. 

52.  This  temporary  use  of  the  metallic  reserves  of  the  banks, 
besides  helping  to  abridge  the  period  of  transition,  will  be  attended 
Avith  the  additional  advantage  that  it  will  save  the  Government  from 
being  obliged,  as  probably  would  otherwise  be  the  case,  to  buy  silv(M- 
in  order  to  start  coining  the  new  money.  But  Ave  have  no  idea  of 
suggesting  that  these  mint  certificates  should  leave  the  vaults  of  the 
banlvs,  both  because  Ave  consider  that  there  is  no  call  for  such  issuance 
and  because  that  issuance  Avould  mean  the  addition,  not  for  a  A'ery 
long  period,  of  another  form  of  fiduciary  circulation  to  the  many 
already  in  existence. 

On  this  point,  Avhich  relatively  is  of  minor  importance,  the  under- 
signed differ  from  the  views  sustain'ed  at  the  sessions  of  the  fifth 
^ubconunittee  by  Mr.  Enrique  C.  Creel,  views  also  shared  by  Lie. 
Joa(|uin  I).  Casasus,  Eng.  Manuel,  Fernandez  Leal.  Jose  de  Landero 
y  Cos,  and  Lie.  Genaro  Kaigosa. 

K.  Rate  at  iv/i/ch  the  new  coin  /,>-  to  he  gineii  in  exchange  for  that 
which  i.s  vou'  legal  tender — Quantity  of  xilrer  that  the  new  dollar  in 
to  contain. — 58.  Sundry  ])ei-soiis,  not  indeed  including  any  of  our 
esteemed  colleagues,  eithei-  on  the  (iftii  subcommittee  or  on  the  mone- 
tary commission,  have  expressed  to  us  the  opinion  that  the  present 
coin  ought  not  to  be  exchanged  for  the  new  coin  proposed  by  us  at 


414       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

i^ar,  but  that  the  coin  which  is  now  legal  tender  ought  to  be  subject 
to  a  certain  rebate  or  discount. 

54.  This  opinion  is  based  on  the  assumption  that  the  new  coin, 
which  is  destined  to  be  worth  in  gold  more  than  its  bullion  value, 
ought  to  be  estimated  by  the  legislator  at  a  higher  rate  than  the 
present  coin  from  the  very  moment  of  its  being  put  into  circuhition; 
and  it  is  maintained  that  this  would  not  be  an  injustice  to  creditors 
under  prior  contracts,  seeing  that  they  would  be  paid  in  a  superior 
coin,  but  that,  on  the  contrary,  it  would  be  the  way  to  do  tlie  fullest 
justice  both  to  creditors  and  debtors,  seeing  that  otherwise  the  liabil- 
ities of  the  latter  would  be  augmented  through  their  having  to  pay 
old  debts  contracted  in  coinage  of  variable  value  in  a  coin  Avorth  a 
fixed  or  nearly  fixed  amount  in  gold,  and  therefore  more  highly 
esteemed. 

55.  That  this  point  of  view  is  entitled  to  careful  consideration  is 
j^roved  by  the  recent  example  of  the  Philippines,  where  it  has  been 
provided  that  the  present  silver  dollar  will  be  exchanged  for  the  new 
one  at  rates  which  the  governor  of  the  islands  shall  from  time  to  time 
fix  by  proclamation,  and  inasmuch  as  this  question  is  intimately 
bound  up  with  another  question,  viz.,  whether  the  new  coin  is  to  con- 
tain the  same  quantity  of  pure  silver  as  the  present  coin,  our  argu- 
]nents  will  refer  to  both  points  jointly. 

5G.  If  the  Government  in  issuing  the  new  coins  were  only  to  accept 
the  old  ones  at  a  discoimt  approximating  or  actually  equivalent  to 
their  bullion  value,  it  would  contract  at  least  a  moral  obligation  to 
guarantee  the  conversion  of  said  new  coins  into  gold,  for  only  thus 
could  the  discount  be  justified.  Now,  we  have  already  seen  the  serious 
drawbacks  to  such  a  guaranty  and  the  grave  responsibilities  which 
the  Government  would  be  assuming  for  the  entire  nation.  Perhaps 
it  would  be  preferable— it  would  certainly  be  safer — to  introduce  the 
gold  standard  with  gold  in  circulation.  If,  on  the  contrary,  the 
authorities  confine  themselves  to  giving  in  exchange  for  the  present 
coin  at  par  another  coin  containing  the  same  quantity  of  pure  silver, 
though  of  a  different  design,  they  impose  on  the  nation  no  effective 
liability,  or  any  other  kind  of  liability,  excepting  the  cost  of  recoin- 
age  and  the  loss  from  wear,  which  do  not  constitute  a  sacrifice  out 
of  proportion  with  the  improvement  in  general  monetary  conditions 
which  is  sought  to  be  brought  about,  nor  involve  the  country  in  risks 
of  unknown,  or  almost  unknown,  import.  At  the  worst  a  not  very 
considerable  disbiu'sement  will  have  been  incurred,  but  no  opposition 
will  be  aroused,  and  the  holders  of  the  present  Mexican  dollar  will 
not  be  able  to  say  that  the  quantity  of  silver  owned  by  them  is  being 
reduced. 

57.  The  point  of  view  of  fairness  both  to  creditors  and  debtors  is 
also  important.  It  is  true  that  debtors,  by  paying  old  debts  in  the 
new  dollar,  which  will  be  worth  more  in  gold  for  purposes  of  inter- 
national exchange,  will  be  giving  a  superior  coin  and  therefore  a 
coin  more  liigldy  pi'ized  or  esteemed  than  tlie  old  one,  aud  that  thus 
creditors  will  be  benefhed;  but  it  nnist  not  be  foi'gotteu  that  to  the 
great  majority  of  debtors  and  creditors  the  superioi-  (|iiality  of  the 
new  coin  will  not  be,  so  to  si)eak,  tangible  or  percei)tible,  seeing  that 
they  have  no  direct  concern  in  international  connnerce  and  exchange. 
They  would  with  difficulty  understand,  if  they  understood  at  all, 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  415 

the  reason  for  (he  (liscouiit  on  the  okl  coin,  and  in  the  meantime  the 
creditor  chiss  (and  Avho  does  not  belong-  thereto  to  the  extent  of  a 
small  salary  or  j)etty  Avage?)  would  comi:)lain  of  an  apparent  injus- 
tice, irritatniii:  on  account  of  its  very  inexplicability. 

The  important  point  in  this  matter,  which  is  a  most  delicate  one 
seein«r  that  it  concerns  all  persons  without  exception,  is,  according;  to 
the  wei_i>htiest  opinions,  tliat  tlie  existino-  al)ility  of  debtors  to  pay 
their  debts  should  not  be  curtailed,  and  that  ability  depends  on  their 
status  as  creditors.  If,  tluu'efore,  in  this  sense,  care  is  taken  to  con- 
serve the  ability  of  everyone  to  acquire  the  wherewith  to  pay  his 
debts  no  one  can  justly  complain  in  his  capacity  as  a  debtor. 

The  enlightened  and  cultured  portion  of  the  nation  will  not  fail 
to  perceive  that  in  the  long  run  there  will  come  about  a  reduction  in 
the  cost  of  living,  and  therefore  in  prices  generally;  but  at  lirst  there 
will  be  no  reduction,  as  is  proved  by  the  unvarying  experience  of 
othei-  countries,  in  small  salaries  or  wages,  a  fact  which  it  may  be 
remarked  incidentally  will  better  the  situation  of  the  needy.  More- 
over, the  reduction  in  (piestion,  which  will  be  the  result  of  competition 
and  not  of  impoverishment,  will  operate  slowly,  and  will  take  place 
in  such  manner  as  not  to  cause  inconvenience  to  anyone,  for  all  old 
debts  will  gradually  have  been  liquidated. 

58.  The  question  of  the  quantity  of  pure  silver  which  the  new 
dollar  is  to  contain  is  sul)ject  in  our  case  to  special  considerations, 
which  we  proceed  to  explain. 

The  Civil  Code  of  the  Federal  District  and,  in  imitation  thereof,  the 
civil  codes  of  all  the  States  of  the  Republic  provide  that  payments  or 
'"  prestations  in  money  must  be  made  in  the  kind  of  money  agreed 
upon,  and  if  this  is  not  possible  in  that  Avhich  shall  coincide  with 
the  real  value  of  the  money  owed."  (Art.  1453  of  the  Civil  Code.) 
This  precept,  in  spite  of  its  vagueness,  economically  considered,  has 
doubtless  given  rise  to  the  engagement  Avhicli  has  become  almost  a 
matter  of  course  in  all  written  undertakings  to  pay,  viz.,  that  said 
payment  shall  l)e  etfected  in  hard  dollars  of  the  current  Mexican  coin- 
age and  of  the  weight  and  fineness  provided  by  the  present  monetary 
law,  with  the  i)roviso  that  if  said  law  is  modified  the  creditor  shall 
choose  the  kind  of  money  in  which  he  shall  be  paid,  the  above  article 
of  the  Civil  Code  being  to  that  end  renounced. 

The  binding  force  of  such  an  agreement  might  be  contested  on  the 
strength  of  solid  arguments  furnished  by  article  2C90  of  the  Civil 
Code  and  article  359  of  the  Code  of  Commerce,  which  are  as  follows: 

''Art.  2G90.  When  the  loan  is  made  in  money  and  in  a  given  class 
of  coin  the  borrower  shall  pay  in  the  same  kind  of  coin  as  was 
received  by  him,  no  matter  Avhat  may  be  the  value  of  said  coin  at 
the  time  ()f  effecting  payment.  If  he  can  not  pay  in  said  kind  he 
must  deliver  a  quantity  of  current  coin  coinciding  with  the  real  value 
of  the  coin  received."' 

'"Art.  359.  If  the  loan  consists  of  money  the  debtor  will  ]iay  by 
returning  a  quantity  equivalent  to  that  received  by  him,  in  accordance 
with  the  monetary  legislation  in  force  in  the  Kepublic  at  the  time  of 
effecting  |)ayment.  and  this  pi-ovision  may  not  l)c  renounced." 

Notwithstanding,  merchant'-;  in  general  and  even  the  baid\s  inti-o- 
duce  in  contracts  executed  in  their  behalf  the  old  clause  mentioned 
above,  and  to  interfere  with  the  application  thereof,  regardless  of  its 


416       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

inveteracy  and  the  confidence  felt  by  all  in  its  efficacy,  would  be  to 
create  an  interminable  source  of  controversies.  Moreover,  liabilities, 
which,  like  debts  secured  by  mortgage,  are  not  connnercial,  and  in 
respect  to  which,  according  to  the  practice  consecrated  by  usage, 
article  2600  of  the  Civil  Code  has  been  renounced,  are  probably  gov- 
erned only  by  the  provision  of  article  1^:5:3  of  the  same  code,  above 
alluded  to,  and  it  must  be  borne  in  mind  that  if  the  new  dollar  were 
to  contain  a  smaller  quantity  of  pure  silver  than  the  present  one  cred- 
itors might  feel  entitled  to  exact  from  debtors  a  larger  amount  in  the 
new  coin  than  that  which  was  promised  them  in  the  present  one. 
AVhether  such  a  claim  Avould  hold  good  or  not  (and  we  will  not  enter 
into  the  question  at  length  here,  seeing  that  we  are  not  competent  to 
pass  upon  it),  the  fact  remains  that  it  would  give  rise  to  many  con- 
troversies which  would  be  a  drag  on  the  monetary  reform  by  making 
it  in  all  i^robability  very  unpopular. 

For  these  reasons  we  have  decided  to  propose  that  the  new  dollar, 
though  conforming  to  the  metric  and  decimal  system,  as  provided  by 
the  general  monetary  law,  shall  contain  the  same  quantity  of  pure 
silver  as  the  present  one,  and  shall  be  exchanged  for  it  at  par. 

F.  8%ibsidiary  coinage — Other  points  of  minor  importance. — 59. 
The  reasons  that  influenced  us  in  favor  of  the  fineness  and  weight  of 
the  subsidiary  coinage  whose  adoption  we  recommend  are  almost 
wholly  the  same  as  those  set  forth  in  the  comprehensive  and  con- 
scientious report  which  Messrs.  Fernandez,  Leal,  and  Casasus  pre- 
sented to  the  fifth  subcommittee,  with  certain  modifications  accepted 
unanimously  by  all  of  us,  the  most  important  of  which  is  the  recom- 
mendation that  the  Government  retain  the  5-cent  piece,  owing  to  its 
unquestioned  practical  utility,  though  without  specifying  the  metal 
of  which  it  is  to  be  coined,  for  fear  that  if  nickel,  which  is  the  most 
suitable  metal,  were  mentioned  the  suggestion  would  cause  a  bad  im- 
pression in  public,  owing  to  the  unfortunate  events  which  occurred  in 
1883  at  the  capital  of  the  Kepublic  in  consequence  of  an  imprudent 
emission  of  nickel  coins. 

60.  The  limitation  of  the  legal-tender  capacity  of  the  subsidiai-y 
coinage  seemed  to  us  a  necessity,  counseled  alike  by  science  and  the 
example  of  other  nations,  especially  if  its  fineness  is  curtailed  accord- 
ing to  our  reconnnendation,  which  is  based  on  the  saving  thereby  to 
the  treasury  and  other  reasons  of  puldic  expediency  which  we  do  not 
need  to  expound  on  account  of  their  obviousness. 

61.  Nor  does  it  seem  necessary  to  give  any  lengthy  reasons  for  the 
suggestion  that  in  effecting  the  exchange  of  the  present  subsidiary 
coinage  its  holders  be  allowed  freedom  of  choice  as  to  whether  they 
will  receive  the  new  money  in  hard  dollars  or  coins  of  lesser  denomi- 
nations, especially  in  view  of  the  fact  that  we  recommend  the  diminu- 
tion of  the  fineness  of  the  latter.  There  might  be  persons  who  Avould 
want  to  receive  the  same  quantity  of  pure  silver  as  that  turned  in  by 
them,  and  in  any  event  it  Avould  be  avcH  to  avoid  anything  resenil)ling 
injustice  or  coercicm  that  might  lend  to  l)ring  the  monetary  reform 
into  disfavor. 

62.  The  measure  wliich  we  propose  to  prevent  any  cA'cess  in  the 
(luantity  of  snbsidiary  coinage  in  circulation  re([uires  a  slightly  fuller 
exi)lanati<)n.  Oin-  recommendation  is  tliat  offices  be  established  in 
all  the  chief  cities  of  the  Republic  at  which  subsidiary  coins  presented 


GOLD    STANDARD    IJST    INTERNATIONAL    TRADE.  417 

in  quantities  of  $100  or  multiples  thereof  shall  be  changed  easily  and 
freely  for  hard  dollars.  This  is  the  method  successfully  adopted  by 
the  monetary  laws  of  the  United  States.  But,  strictly  speaking,  any 
of  the  other  measures  which  in  other  nations  have  been  found  to  pro- 
duce automatically  the  desired  result  would  serve  our  purpose  as  w^ell. 
In  (ireat  Britain,  for  exauiple,  the  token  coins  are  only  issued  when 
demanded  from  the  Bank  of  England,  and  theii*  noniinal  value  in 
gold  is  i^aid  in  to  that  institution.  The  important  point  is  to  pre- 
vent any  excess  in  the  token  coinage  that  would  bring  about  its  depre- 
ciation. 

63.  One  of  the  essential  features  of  any  monetary  reform  such  as 
that  which  we  are  now  recommending  consists  in  inspiring  our  own 
people  and  outsiders  Avith  the  necessary  confidence  that  the  measures 
adopted  wdll  be  carried  out  inflexibl}^  and  with  the  utmost  scrupulous- 
ness. In  order  to  achieve  this  important  result  it  has  seemed  to  us 
that  the  execution  of  the  law  that  may  be  passed  should  not  be 
intrusted  to  Government  employees  alone,  and  this  not  because  those 
employees  are  incapable  of  inspiring  the  desired  confidence,  but 
because  that  confidence  will  be  still  stronger  if  private  persons  of  high 
standing  in  the  community,  under  the  chairmanship  of  the  citizen 
who  may  be  at  the  head  of  the  finance  department,  are  invested  with 
this  honorable  trust. 

Such  is  the  ground  for  the  eleventh  base  of  the  plan. 

MEASURES  TO  PROVIDE  FOR  A  RISE  IN  THE  PRICE  OF  SILVER. 

64.  The  fifth  subcommittee  discussed  a  point  raised  by  Mr.  Ricardo 
Garcia  Granados,  viz.,  what  ought  to  be  done  in  case,  subsequently  to 
the  adoption  of  the  monetary  reform,  the  gold  price*  of  silver  were  to 
rise  to  a  point  at  which  the  bullion  value  of  the  new  dollar  should 
become  equal  to,  or  even  exceed,  legal  parity.  Such  a  contingency 
can  not  be  regarded  as  impossible  if  one  considers  the  surprises  which 
the  constant  fluctuations  of  silver  have  had  in  store  even  for  the  most 
farseeing  and  well  informed  persons.  To  meet  such  a  contingency 
there  would  only  be  two  courses:  Either  to  alter  the  relationship  or 
legal  parity  adopted  when  the  reform  was  enacted,  or  to  go,  fully  and 
openly,  on  the  gold  basis  w^ith  gold  in  circulation;  and  inasmuch  as 
the  drawbacks  and  disastrous  consequences  of  the  former  course  were 
obvious,  the  latter  was  adopted  without  hesitation  or  difference  of 
opinion,  and  in  consequence  was  embodied  in  the  twelfth  base  of  the 
plan  of  reform. 

MEASURES  CALCULATED  TO  OHVIATE  OR  DIMINISH  THE  TEMPORARY  INJURY  THAT  MAY 
ACCRUE  TO  EXPORT  INDUSTRIES. 

65.  Messrs.  Jose  de  Landero  y  Cos  and  Carlos  Sellerier,  as  members 
of  the  fifth  subcommittee,  were  enchar^ed  with  the  task  of  making  a ' 
special  study  of  the  measures  that  might  be  adopted  to  obviate  or 
mitigate  the  evil  effects,  of  a  temporary  nature,  that  may  accrue  to 
the  silver-nuning  industry  and  ex[)ort  industries  in  general  from  the 
stabilization  of  international  exchange.  The  gentlemen  in  question 
proposed  the  abolition  of  export  duties  on  all  domestic  products  and 
substantial  reductions  in  other  taxes,  direct  and  indirect,  on  mining, 
and  especially  on  silver  mining.     None  of  us  questioned  in  principle 

.  S.  Doc.  128,  58-3 27 


418  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

the  expedience  of  these  or  similar  measures,  but  the  balance  of  opinion 
was  in  favor  of  not  recommending  them  in  a  concrete  form,  inasmuch 
as  they  are  strongly  fiscal  in  character  and,  therefore,  outside  of  the 
commission's  province.  In  this  spirit  the  thirteenth  and  last  base  of 
the  plan  of  monetary  reform  was  framed. 

CONCLUSION. 

66.  Such  are  the  grounds  that  have  decided  us  to  form  the  plan  or 
project  appended  hereto  and  to  lay  it  before  the  monetary  commission 
and  through  that  commission  to  the  consideration  and  examination  of 
the  minister  of  finance  and  the  President  of  the  Republic,  who  will 
doubtless  elect  the  course  that  is  most  conducive  to  the  welfare  of  the 
nation  with  the  wisdom  which,  in  so  many  ways  and  on  so  many 
occasions,  they  have  demonstrated. 

67.  We  do  not  think  that  the  plan  in  question  contains  any  novelty 
or  that  the  monetary  question,  which  it  is  intended  to  solve,  is  as 
difficult  as  it  has  been  repeatedly  declared  to  be  by  the  press  and  in 
some  circles  of  the  mercantile  community.  In  our  humble  opinion  the 
only  difficulty  which  the  question  involves  consists  in  carefully  ascer- 
taining the  facts  or  phenomena  of  our  economic  life,  in  examining 
them  without  prejudice,  and  then  calmly  and  impartially  applying  to 
them  principles  on  which  economic  science  has  set  its  seal  of  approval 
and  Avhich  the  experience  of  all  civilized  nations  has  most  fully  and 
satisfactorily  tested.  The  former  task,  that  is  to  say,  the  ascertain- 
ment of  facts,  has  been  accomplished  by  the  four  subcommittees  into 
which  the  monetary  commission  was  from  the  start  divided,  and  they 
have  acquitted  tliemselves  thereof  with  such  scrupulousness  and  com- 
prehensiveness that  no  one,  in  or  out  of  the  commission,  can  question 
the  conclusions  at  which  they  have  arrived.  The  latter  task,  i.  e.,  the 
application  to  those  facts  of  established  scientific  principles,  is  rela- 
tively easy  and  simple,  for  if,  by  virtue  of  individual  opinions  which 
can  never  be  completely  identical,  differences  may  arise  as  to  matters 
of  secondary  importance,  the  fundamental  point  of  view  must  be 
the  same. 

In  thus  expressing  ourselves  we  have  no  thought  of  depreciating 
our  personal  labors  with  false  modesty  in  order  to  incite  others  benev- 
olently to  extol  them,  but  simply  to  reduce  them  to  their  proper  pro- 
portions, claiming  for  ourselves  credit  for  nothing  but  the  patriotic 
zeal  and  absolute  sincerity  with  which  we  have  discharged  the  task 
assigned  to  us  when  Ave  received  the  honorable  summons  to  the  coun- 
cils of  our  enlightened  Government. 

68.  In  one  respect  we  do  believe  that  our  plan  possesses  advantages 
over  others,  viz.,  in  that  its  adoption  will  never  and  in  no  case  entail 
.serious  inconveniences  or  detriments,  nor  any  such  that  could  not  be 

remedied  by  a  simple  legislative  enactment  of  which  the  action  would 
be  innnediate  and  efficacious.  If  the  closing  of  the  mints  Avhich, 
after  all,  if  the  matter  be  rightly  considered,  is  the  only  measure  in 
our  plan  that  could  be  characterized  as  radical,  fails  to  realize  the 
hopes  built  ui)on  it,  and  occasions  evils  instead  of  the  inestimable 
blessing  of  fixity  of  international  exchange,  with  all  its  incalculably 
beneficient  consequences,  it  will  be  very  easy  to  fall  back  on  the 
present  system  by  reopening  the  mints  to  the  free  coinage  of  silver. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       419 

This  does  not  mean,  we  repeat  in  conclusion,  that  \\c  harbor  doubt 
and  distrust  or  that  we  are  recommending-  reforms  of  problematical 
success.  AVe  are  simply  offering  to  the  most  conservative,  nay,  the 
most  timorous,  spirits  a  consideration  that  is  calculated  to  reassure 
them  to  the  fullest  extent. 

Pabl<t  Macedo. 

Eaekardo  I Iegewisch. 

Carlos  Sellerier. 

KicARDo  Garcia  Granados. 

Carlos  Diaz  Dufoo. 

Luis  G.  Labastida. 

Jaime  Gurza. 
Mexico,  December'  11^  1903. 


Project  of  Monetary  Reform. 

FIRST   article. 


In  order  to  obtain  stability  or  fixity  of  international  exchange  the 
Government  should  be  advised  to  adopt  a  monetary  system  based  on 


the  gold  standard. 


second  article. 


I.  The  immediate  adoption  of  the  gold  standard  with  gold  in  cir- 
culation is  not  to  be  recommended. 

II.  On  the  contrary,  as  the  most  adequate  means  of  bringing  about 
a  regime  under  which  gold  coins  will  constitute  the  chief  circulating 
medium  of  the  Eepublic,  it  is  advisable  to  adopt,  for  the  time  being,  a 
system  that  will  keep  silver  coins  in  circulation  in  quantities  as  con- 
siderable as  possible  without  impairing  the  practical  maintenance  of 
their  parity  with  gold  at  the  ratio  that  may  be  adopted. 


THIRD   ARTICLE. 


In  order  to  realize  this  purpose  the  national  Government  is  to  be 
recommended  to  adopt  a  plan  of  monetary  reform  based  on  the  fol- 
lowing clauses: 

First. — The  mints  of  the  Republic  will  be  closed  to  the  free  coinage 
of  silver  and  the  reimportation  of  the  silver  dollars  that  hitherto  have 
been,  and  still  are,  legal  tender  in  the  Republic,  will,  with  suitable 
anticipation,  be  prohibited  under  the  penalties  provided  for  smug- 
gling or  such  other  penalties  as  may  be  deemed  sufficient. 

Second. — I.  As  the  fundamental  basis  for  the  new  monetary  regime 
a  fixed  ratio  between  gold  and  the  silver  dollar  hereinafter  re|erred  to 
will  be  adopted,  and  the  Government  is  to  be  advised  that  the  ratio 
in  question  be  determined  on  the  basis  of  the  average  gold  price  of 
the  Mexican  dollar  on  foreign  markets  dtiring  the  last  ten  years,  with 
an  increase  not  exceeding  10  per  cent. 

II.  Gold  coins  will  not  at  once  be  minted  either  on  Government  or 
private  account ;  said  mintage  should  l)e  deferred  until  such  time  as 
the  silver  dollar  shall  have  attained  parity  with  gold  and  when  the 
circulation  of  gold  coin  will  not,  in  the  opinion  of  the  Government, 
impair  the  maintenance  of  that  parity. 


420       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

III.  The  gold  coins,  when  minted,  will  be  900  thousandths  fine;  an 
effort  will  be  made  to  assimilate  them  preferably  with  the  American 
dollar  and  there  will  be  pieces  of  $5  and  $10  only. 

Third, — The  Government  will  proceed  to  coin  on  behalf  of  the 
nation : 

I.  A  new  silver  dollar,  900  thousandths  fine,  containing  the  same 
quantity  of  pure  silver  as  the  dollar  now  in  circulation,  but  with  a 
different  design  or  effigy.  In  other  words,  the  new  dollar  will  weigh 
27.1550  grams  and  will  contain  24.'1395  grams  of  jiure  silver. 

II.  Subsidiary  silver  coins,  800  thousandths  fine  and  of  the  follow- 
ing denominations,  value,  and  weight : 

(«)  A  toston  or  half  dollar,  worth  50  cents,  weighing  12.5  grams 
and  containing  10  grams  of  pure  silver. 

{h)  A  quinto,  worth  20  cents,  weighing  5  grams  and  containing  4 
grams  of  pure  silver. 

(c)  A  dime,  worth  10  cents,  weighing  2.5  grams  and  containing  2 
grams  of  pure  silver. 

III.  A  5-cent  piece  of  such  metal  and  other  qualities  as  the  Govern- 
ment may  deem  expedient. 

IV.  A  centavo  of  bronze  of  the  same  w^eight  and  other  qualities  as 
laid  down  by  the  laws  at  present  in  force  for  the  existing  centavo. 

Fourth. — The  new  coin  will  be  legal  tender  in  the  offices  of  the  Fed- 
eration, the  States,  and  the  municipalities,  as  well  as  for  private  per- 
sons, in  payment  of  taxes  and  other  pecuniary  transactions  of  every 
kind  originating  in  law,  contract,  or  any  other  source,  subject  to  the 
following  rules : 

I.  The  new  gold  piece  (when  coined)  and  the  silver  dollar  without 
any  limitation  as  to  amount. 

II.  Subsidiary  coins,  in  pieces  of  from  10  to  50  cents,  up  to  $10  in 
each  payment. 

III.  The  5-cent  piece  and  the  bronze  centavo  up  to  25  cents  in  each 
payment. 

Fifth. — As  soon  as  the  Government  shall  have  in  readiness  a  quan- 
tity of  the  new  coins  which  it  considers  sufficient  wherewith  to  begin 
putting  them  into  circulation,  it  will  give  directions  that  they  be 
given  out  in  exchange  for  the  silver  dollars,  subsidiary  silver  coins, 
and  the  copper  centavos  which  are  at  present  legal  tender  in  the 
Republic,  subject  to  the  following  rules : 

I.  The  exchange  will  be  effected  at  par. 

II.  As  large  a  mmiber  as  possible  of  public  and  private  establish- 
ments will  have  charge  of  the  exchange,  so  as  to  accomplish  it  as 
speedily  as  may  l)e  and  to  obviate  expenses  and  trouble  to  the  public. 

III.  The  Government  may  make  arrangements  with  the  banks 
whereby  they  will  deliver  to  the  mint  or  mints  a  part  of  their  metallic 
cash  holdings,  receiving  in  return  special  certificates  from  said  mints, 
which  will  be  counted  as  part  of  their  obligatory  reserves. 

Sixth. — I.  The  Government  shall  oidy  put  into  circulation  silver 
dollars  in  such  quantity  as  shall  be  necessary  to  effect  the  exchange  of 
the  coins  that  are  now  legal  tender  in  the  Republic. 

II.  When  that  exchange  shall  have  been  effected  the  Government 
may  not  put  in  circulation  any  additional  amount  of  silver  dollars, 
except  upon  the  receipt  in  Mexico  or  abroad  of  the  equivalent  amount 
in  bars  or  coins  of  gold,  according  to  the  ratio  established  by  law,  plus 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       421 

expenses  of  transportation,  insurance,  and  otliors,  if  the  delivery  takes 
place  outside  of  the  Republic. 

Seventh. — I.  The  Government,  in  view  of  the  public  demand,  will 
decide  as  to  tlie  quantity  of  subsidiary'  pieces  that  are  to  be  coined; 
))ut  in  order  tliat  the  circuhition  of  tiiese  coins  may  be  automatically 
iciiulated  aud  may  never  be  excessive,  there  ought  to  exist,  at  least  in 
all  the  ports  and  frontier  cities  where  there  is  a  custom-house  euipow- 
cred  to  handle  foreign  trade,  at  the  capital  of  the  Kepublic,  and  at 
the  capitals  of  the  States  and  Federal  territories,  offices  where  per- 
sons may  freely  and  easily  obtain  hard  dollars  for  subsidiary  coins 
presented  by  them  in  amounts  of  $100  and  multiples  thereof. 

II.  If  circumstances  so  demand,  an  amount  of  silver  dollars,  to  be 
kept  apart  from  other  resources  and  holdings  of  the  Federal  exchequer 
and  even  from  the  reserve  fund  to  be  hereinafter  mentioned,  may  be 
devoted  specially  to  effecting  the  exchange. 

EUjlith. — Without  detriment  to  the  adoption  of  such  legislative 
and  administrative  measures  as  the  Government  may  deem  expe- 
dient, and  which  shall  tend  to  increase  the  stock  or  supply  of  gold  in 
the  home  market,  and  to  diminish  the  gold  charges  against  the  nation, 
or,  in  other  words,  to  diminish  the  demand  for  gold  m  the  home 
market,  or  to  effect  both  objects,  a  reserve  fund  in  gold  or  in  silver 
will  be  created,  and  will  be  maintained  in  the  Republic  or  abroad,  but 
wholly  independent  of  the  other  resources  and  holdings  of  the  Fed- 
eral exchequer.     Said  reserve  fund  will  be  formed  out  of : 

I.  The  surpluses  of  Federal  budget  appropriations  for  the  expenses 
of  the  mint  or  mints  of  the  Republic  and  of  the  mintage  and  emission 
of  the  new  coins. 

II.  The  sums  derived  from  profits  or  gains  of  all  kinds  connected 
with  said  mintage. 

Ninth. — I.  In  principle,  no  attempt  ought  to  be  made,  brusquely 
and  untransitionally,  to  bring  about  by  direct  Government  action  the 
legal  parity  between  gold  and  the  silver  dollar,  so  that  the  interests 
of  private  persons  which  necessarily,  even  though  temporarily,  will 
be  affected  by  the  change  of  monetary  regime,  may  adjust  themselves 
thereto  gradually  and  s])ontaneously. 

II.  Nevertheless,  if  by  the  mere  fact  of  the  closing  of  the  mints  to 
the  free  coinage  of  silver  and  the  other  general  measures  which  the 
Government  may  adopt  in  the  direction  outlined  in  the  foregoing 
clause,  the  legal  parity  between  gold  and  the  silver  dollar  shall  take 
a  longer  time  in  materializing  than  the  Government  deems  advisable 
in  view  of  the  circimistances,  then  the  surest  means  for  bringing  about 
that  parity  will  consist  in  adding  to  the  reserve  fund  a  sufficient 
amount  to  influence  the  home  market  for  foreign  exchange,  and  l)y 
putting  into  practice  the  operations  described  in  the  following  clause : 

Tenth. — I.  Xeither  the  creation  of  the  reserve  fund  nor  the  aug- 
mentation of  its  volume  will  entail  any  obligation  on  the  Government 
to  give  gold  bars  or  gold  coins  in  exchange  for  silver  dollars. 

II.  The  object  of  the  reserve  fund  is  the  sale,  when  deemed  advis- 
able, of  gold  drafts  on  foreign  parts  to  satisfy  the  needs  of  interna- 
tional exchange,  at  rates  that  will  improve  the  rates  of  the  country's 
home  market,  with  the  constant  aim  of  establishing  gradually  the 
legal  paiity  between  gold  and  silver  dollars,  or  to  maintain  that 
parity  when  once  secured. 


422  GOLD   STANDARD    IN    INTERNATIONAL   TRADE. 

III.  The  sale  of  drafts  will  be  effected  upon  payment  of  tlieir  price 
cash  down,  in  silver  .dollars,  which  Avill  enter  the  reserve  fund,  and 
may  not  be  reissued,  save  in  accordance  with  the  rules  contained  in 
Section  II  of  clause  sixth. 

Eleventh. — In  the  absence  of  an  adequate  banking  association, 
which  does  not  exist  in  our  countr}',  a  special  board  or  committee  will 
be  created,  to  be  appointed  and  presided  over  by  the  minister  of 
finance  and  jjublic  credit,  and  said  board  or  committee,  subject  to  the 
terms  of  the  law  and  administrative  regulations,  will  have  charge  of 
the  following  matters: 

I.  The  superior  direction  of  the  mint  or  mints  of  the  Republic  and 
of  all  the  operations  connected  with  the  mintage  of  the  new  coins, 
with  their  distribution  in  exchange  for  the  coins  that  are  now  legal 
tender,  and  the  withdrawal  of  the  latter. 

II.  The  direct  administration  of  the  reserve  fund  mentioned  in  the 
foregoing  clauses  with  the  necessaiy  powers,  especially  with  the 
power  to  issue  additional  amounts  of  silver  dollars  and  to  sell  gold 
drafts  on  foreign  parts,  as  provided  hy  clauses  sixth  and  tenth. 

Tioelfth. — If  the  gold  price  of  silver  in  foreign  markets  shall  rise 
so  that  the  silver  dollars  shall  come  to  possess,  with  a  certain  degree 
of  stability,  a  metallic  value  equal  or  greater  than  that  ascribed  to 
them  by  the  legal  ratio  adojDted  when  the  new  regime  goes  into  effect, 
steps  will  be  taken  to  demonetize  the  silver  dollar  and  to  introduce 
the  gold  standard,  with  the  free  coinage  and  use  of  the  yellow  metal 
as  a  medium  of  circulation. 

Thirteenth. — The  National  Government  will  adopt  such  measures 
as  it  may  deem  expedient  which,  without  impairing  the  equilibrium 
of  the  budget,  shall  tend  to  obviate  or  at  least  to  mitigate,  the  tem- 
porary loss  or  harui  that  may  accrue  to  some  of  the  interests  con- 
nected with  silver  mining  and  the  industries  that  produce  articles  for 
exportation,  as  a  consequence  of  the  stabilization  of  exchange. 

Pablo  Macedo. 

EVERADO    HeGEWISCH. 

Carlos  Selleier. 
RiCARDo  Garcia  Granados. 
Carlos  Diaz  Dufoo. 
Luis  G.  Labastida. 
Jaime  Gurza. 
Mexico,  December  11.,  1903. 


GOLD   STANDARD    IN    INTERNATIONAL    TRADE.  428 


2.  MONETARY  REFORM  IN  MEXICO— EXPLANATORY  STATEMENT 
AND  BILL  SENT  TO  CONGRESS  BY  THE  MINISTER  OF  FINANCE 
Lie.  DON  JOSE  YVES  LIMANTOUR. 

MEXICO'S  MONETARY  REFORM— PROPOSED  LEGISLATION  SUBMIT- 
TED BY  THE  MEXICAN  DEPARTMENT  OF  FINANCE  TO  CONGRESS 
LOOKIX(;  TO  THE  STABILIZATION  OF  THE  VALUE  OF  THE  MEXI- 
CAN Sn.VER  DOLLAR  AS  EXPRESSED  IN  GOLD. 

On  the  afternoon  of  Friday,  November  18,  1904,  an  epoch-making 
l)ill  was  presented  by  the  finance  department  to  the  Mexican  Congress. 

The  bill  in  question  related  to  measures  of  monetary  reform,  its 
aim  being  to  impart  to  the  Mexican  silver  pesos,  or  dollar,  a  fixed 
value  in  gold. 

In  the  preamble  or  expose  de  motifs,  the  minister  of  finance  of 
Mexico,  Lie.  Jose  Yves  Limantour,  explains  the  scope  and  nature  of 
the  proposed  legislation.     The  preamble  is  followed  by  the  bill. 

The  following  is  a  full  translation  of  both  preamble  and  bill  : 

Object  of  the  Bill. 

In  taking,  by  means  of  the  present  bill,  the  first  step  designed  to 
solve  in  practice  some  of  the  most  serious  difficulties  involved  in  the 
problem  of  international  exchange,  the  Executive  does  not  propose 
to  set  forth  all  the  considerations  which  a  study  of  the  numerous 
aspects  of  that  problem  have  suggested  to  it,  still  less  does  it  claim  to 
have  found  a  panacea  for  ills  so  varied  as  are  those  which  flow  from  the 
monetary  situation  of  the  Republic.  The  former  would  be  a  lengthy 
task  and  its  utility  Avould  not  be  commensurate  with  its  magnitude. 
It  would  be  necessary  to  reproduce  much  that  has  alread}'^  been  said 
in  the  numberless  treatises  that  have  been  published  on  the  subject, 
and  there  would  be  no  object  in  entering  into  considerations  not 
directly  connected  with  the  points  which  the  Executive  has  resolved  to 
submit  to  the  enlightened  judgment  of  Congress.  And  as  to  remedy- 
ing all  the  evils  under  which  our  community  labors,  owing  to  the 
deficiencies  of  our  monetary  system,  the  attempt  Avould  be  presump- 
tuous and  absurd,  for  the  remedy  is  out  of  the  reach  of  the  public 
powers  in  a  country  whose  customs  and  economic  conditions  do  not 
admit  of  a  radical  solution — the  only  sort  of  solution  susceptible  of 
producing  thoroughly  satisfactor}"  results. 

The  object  of  the  Executive  is  less  ambitious  but  more  practical. 
Instead  of  enlarging  on  the  views  wdiich  it  entertains  on  the  points 
wdiich  form  the  subject-matter  of  public  discussion  and  of  proposing 
a  complete  plan  for  the  reorganization  of  our  monetary  system,  it 
prefers  to  confine  itself  to  submitting  a  certain  number  of  concrete 
measures  of  which  the  adoption  will  suffice  to  impart  a  sufficient 
degree  of  fixity  to  the  gold  value  of  our  currency,  and  touching  only 
(hose  questions  which  are  intimatel}-  connected  with  the  measures 
suggested. 

Dilemma  which  Confronted  the  Government. 

It  would  be  of  no  use  to  give  a  history  of  the  precious  metals  or 
even  of  the  vicissitudes  which  our  national  coin  has  undergone  since 


424  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

the  disparity  between  the  vahie  of  gold  and  the  vahie  of  silver  set 
in  and  became  accentuated.  Nor  Avould  it  conduce  to  any  practical 
object  to  speak  of  the  manifold  causes  which  have  depressed  the  white 
metal  or  of  the  many  other  questions  which  publicists  have  discussed 
in  connection  with  the  depreciation  of  silver.  Studies  of  this  nature 
(which  are  of  undubitable  utility  when  an  endeavor  is  being  made  to 
elucidate  the  fundamental  problem  and  to  refute  preconceived  ideas) 
have  already — seeing  that  numerous  treatises,  both  official  and  pri- 
vate, have  been  published — shed  sufficient  light  on  the  subject  to 
enable  opinions  to  take  definite  form. 

But  it  was  no  easy  matter  to  awaken  public  interest  without  running 
the  risk  of  seriously  unsettling  people's  minds,  and  of  working  harm 
to  important  and  sacred  interests,  without  any  countervailing  advan- 
tage. The  fact  of  the  public's  being  suddenly  appraised,  one  need  not 
say,  of  the  probability  of  a  change  in  monetary  legislation,  but  of  the 
mere  purpose  of  undertaking  a  conscientious  study  of  the  subject, 
would  have  sufficed  to  occasion  a  panic  in  the  silver  market  and  to 
derange  the  rates  of  foreign  exchange  more  seriously  than  ever. 
The  negotiations  with  the  American  Government  initiated  by  this 
department  at  the  beginning  of  last  year,  and,  subsequently,  the  note- 
worthy work  done  both  by  the  Mexican  Commission  on  International 
Exchange  and  by  the  Monetary  Commission  which  met  at  this  capi- 
tal, served  to  prepare  public  opinion,  contributing  powerfully  to 
arouse  at  home  an  interest  in  the  investigation  of  the  questions  con- 
nected with  currency  and  exchange,  without  impairment  of  confi- 
dence, and  to  familiarize  both  our  own  people  and  foreigners  with 
the  capital  problem  to  be  solved — that  is  to  say,  whether  it  is  desir- 
able to  introduce  certain  modifications  in  the  laws  and  practices 
hitherto  observed  in  monetary  matters,  or  whether,  on  the  con- 
trary, the  status  quo  shoidd  be  maintained,  notwithstanding  the 
obvious  disadvantages  that  have  accrued  to  our  public  wealth,  con- 
sidered in  the  aggregate,  through  the  depreciation  of  silver,  but  more 
especially  through  the  fluctuations  of  its  value  in  gold. 

This  dilemma,  having  the  character  of  an  antecedent  question, 
demanded  solution  at  the  hands  of  the  Government,  and  before 
accepting  either  of  the  two  extremes  it  became  indispensable  to 
strike  a  balance  of  the  advantages  and  disadvantages  that  flow,  and 
may  in  future  flow,  from  the  present  monetary  situation  of  the  Repub- 
lic, and  to  determine  how  probable  it  is  that  reforms  in  our  monetary 
system,  well  matured  and  carefully  put  into  practice,  may  enhance 
the  general  welfare. 

Advantages  and  Disadvantages  of  the  Present  Monetary  Situation. 

The  advantages  and  disadvantages  in  question  trace  their  cause  to 
the  common  fate  which  in  Mexico  has  for  centuries  linked  the  value 
of  bar  silver  and  the  purchasing  power  of  the  national  coin,  and  this, 
their  identification,  is  due  to  the  fact  that  rarely  did  the  time-honored 
ratio  of  1  to  15  or  10  between  the  values  of  the  two  precious  metals 
undergo  any  variation,  as  well  as  to  the  fact  that,  inasmuch  as, 
according  to  law,  the  mints  of  the  Kepublic  coin  all  the  silver  which 
the  holders  thereof  ofi'er  for  that  pur])Ose,  it  has  been  possible  to  settle 
our  trade  balance  either  in  silver  bars  or  silver  dollars.  It  is  unques- 
tioned, therefore,  that  any  opinion  foi-med  as  to  the  influence  of  our 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       425 

nionotnry  system  on  (he  development  of  j^iiblic  wealth,  hitherto 
accomplished,  will  depend  on  the  view  held  in  regard  to  the  advan- 
tageous or  disadvantageous  effect  which  the  depreciation  of  silver 
and  the  oscillations  in  its  value  may  have  exercised,  or  may  in  future 
exenuse,  on  the  i)r()s[)erity  of  the  country. 

The  intimate  connection  that  exists  between  the  variations  in  the 
\:ihie  of  the  white  metal  and  the  oscillations  in  the  rate  of  foreign 
exchange,  in  which  the  purchasing  power  of  the  Mexican  dolhir  is 
most  perceptible,  is  the  essence  of  the  problem,  for,  inasmuch  as  the 
relative  fixity  that  had  subsisted  for  centuries  in  the  ratio  between 
the  two  precious  metals  has  disappeared,  perhaps  forever,  we  can 
not  expect  that  our  dolhir  will  be  able  of  itself  to  recover  in  interna- 
tional markets  its  former  price  or  any  other  price  that  will  be  stable. 
Can  that  stability  in  |he  rate  of  foreign  exchange  be  brought  about 
by  means  c(miing  within  the  scope  of  the  Government's  action,  what- 
ever may  be  the  variations  in  the  price  of  the  white  metal?  This  is 
a  question  which  I  will  endeavor  to  answer  further  on. 

Influence  of  the  Depreciation  of  Silver  on  the  Development  of  Public 

Wealth. 

The  deA'elopment  of  export  industries  and  of  all  industries  that 
have  benefited  by  the  natural  protection  arising  from  the  enhanced 
price  of  foreign  articles;  the  extraordinary  appreciation  of  rural  and 
city  real  estate  in  the  greater  portion  of  the  Republic,  and,  in  general, 
the  raj^id  multiplication  of  the  country's  wealth,  are  the  arguments 
adduced  by  those  who  advocate  the  retention  of  the  present  monetary 
legislation.  A  reason  put  forth,  as  being  decisive  against  all  plans 
of  monetary  reform,  is  that  the  country  has  never  been  so  prosperous 
and  so  well  off  as  when  the  depreciation  of  the  white  metal  was  most 
pronounced.  This  observation,  based  indeed  on  facts  which  leave  no 
doubt  as  to  the  prosperous  condition  of  the  Republic  during  the  past 
decade,  has  given  rise  to  a  belief  which  has  prevailed  in  Mexico  until 
within  recent  times,  that  high  rates  of  exchange  are  beneficial  to  the 
countr3\  "  Though  it  may  seem  paradoxical  (thus  to  this  day  argue 
some  advocates  of  the  status  quo)  the  fact  is  that  the  period  of  the 
country's  greatest  prosperity  has  been  precisely  that  during  whick 
the  price  of  silver  was  lowest." 

A  rapid,  albeit  serene  and  rational  examination  of  the  facts,  will 
suffice  to  show  the  value  of  the  conclusions  which  it  has  been  sought 
to  deduce  from  them. 

A  high  rate  of  exchange  doubtless  constitutes  a  powerful  incentive 
to  the  exporter  of  native  products  as  well  as  to  the  manufacturer, 
who,  if  he  is  to  compete  on  advantageous  terms  and  control  the 
interior  market,  stands  in  need  of  an  enhancement  in  the  price  of  the 
foreign  articles  similar  to  his  own  line  of  production.  But  the  incen- 
tive in  question  is  far  from  having  produced  all  the  results  expected 
from  it. 

Agricultural  products  have  been  diversely  affected  according  to  the 
nature  of  the  several  crops.  No  one  can  question  that  the  production 
of  fibers,  particularly  heniquen,  has  received  a  vigorous  impetus  and 
that  that  impetus  is  due  largely  to  the  rise  in  the  rate  of  exchange. 
The  same  may  l)e  said  of  certain  cereals,  such  as  beans  and  chick 
j)ease,  and  of  dried  fruits,  as  well  as  of  untanned  skins,  though  extra- 


426       GOLD  STANDAED  IN  INTERNATIONAL  TRADE. 

neons  causes  have  also  influenced  the  upward  movement.  With  regard 
to  stoclv  raising,  it  is  difficult  to  determine  the  amount  of  influence 
due  to  the  depreciation  of  silver  in  the  development  of  the  industry, 
for  it  has  been  shown  that  fortuitous  conditions  in  certain  foreism 
marl^ets  did  much  to  aid  oar  stock  raisers,  and  certain  other  branches 
of  agricidture  of  some  importance  have  been  similarly  situated. 
Finally,  coffee,  tobacco,  vanilla,  and  a  number  of  articles  which  ai'e 
exported  on  a  small  scale  do  not  seem  to  have  been  benefited  to  a 
marked  extent  by  the  economical  phenomenon  under  consideration. 

Among  mineral  products,  of  which  the  exportation  has  increased, 
silver  itself,  whose  vicissitudes  give  rise  to  so  many  discussions, 
occupies  a  foremost  place,  and  yet  it  can  not  be  said  that  the  pros- 
perity of  silver  mines  is  due  to  a  curtailment  in  the  value  of  the 
output.  In  regard  to  gold,  lead,  and  copper^  which  are  the  other 
metals  produced  in  Mexico  in  considerable  quantities,  it  is  evident 
that,  if  the  rise  in  exchange  influenced  their  extraction,  that  influence 
can  not  have  been  very  great,  for  as  concerns  gold  there  are  few  mines 
which  are  worked  exclusively  on  account  of  the  value  which  that 
metal  has  attained  in  relation  to  silver,  and  as  concerns  lead  and 
copper,  it  is  well  known  that  the  bulk  of  the  production  is  due  chiefly 
to  the  treatment  of  the  precious  metals  by  the  smelting  process  and 
the  exploitation  of  extensive  argentiferous  deposits,  in  which  the 
value  of  the  copper  or  the  lead  is  a  factor  of  relatively  small  impor- 
tance. In  fine,  the  expansion  of  the  mining  industry,  though  facili- 
tated by  the  rise  in  exchange,  can  not  be  attributed  principally 
thereto,  but  rather  to  different  causes,  foremost  among  which  assuredly 
are  the  construction  of  railways  in  entirely  new  regions,  the  cheapen- 
ing of  transportation  rates,  and  modern  methods  of  ore  treatment. 

In  all  other  lines  of  export  products,  whether  they  be  raw  materials 
or  manufastured  articles,  the  depreciation  of  silver  has  not  had  very 
perceptible  effects,  as  is  proved  by  the  relatively  small  volume  of  the 
production  of  those  articles,  when  considered  in  connection  with  the 
time  that  has  elapsed  since  the  depreciation  of  silver  became  accentu- 
ated. 'The  statistical  tables  prepared  by  the  monetary  commission, 
which  met  at  this  capital,  and  by  the  bureaus  of  this  department,  as 
to  the  value  in  gold  of  the  exports  during  the  twenty  fiscal  years 
from  1881  to  1901,  are  conclusive  on  this  point. 

In  the  ten  years  from  1881-82  to  1890-91,  during  which  the  depre- 
ciation was  slight  and  the  fluctuation  in  the  gold  value  of  our  dollar 
Avas  relatively  inconsiderable,  seeing  that  the  coin  in  question  ranged 
in  value  between  0.89  and  0.84  of  the  American  dollar,  our  total 
exports  rose  fronr  $20,000,000  to  $53,000,000  gold,  or  in  other  Avords, 
they  doubled  in  value,  whereas  in  the  next  ten  years,  from  l>^91-92  to 
1900-1901,  during  which  the  value  of  our  dollar  fell  from  0.8-1:  to  0.18 
of  the  gold  dollar,  after  touching  prices  even  lower  than  the  latter, 
the  gold  value  of  our  expoi'ts,  which  in  1891-92  was  $63,000,000,  arose 
only  to  $77,000,000  in  1900-1901,  the  increase  being  barely  from  20  to 
22  per  c(?nt. 

It  may  readily  be  understood  that  to  get  nearer  to  the  truth  it 
would  be  necessary  to  take  other  circnmstances  into  consideration, 
especially  the  variations  that  have  taken  place  in  the  gold  prices  of 
our  exi)ortal)le  ai-tick's  during  the  periods  in  question,  but  even  so, 
if  it  be  considered  that  it  is  in  these  latter  years,  during  which  our 
exports  have  evinced  the  slowest  progressive  rate  of  growth,  that 


OOLD    STANDARD    IN    INTERNATIONAL    TRADE.  427 

the  prioo  of  lioniqiion  has  scored  its  highest  rise — heniqucn,  the  chief 
iioniniiiernl  :irticU>  (hat  we  send  abroad — it  is  necessary  to  adtnit  that 
the  depreciation  of  the  currency  can  not  have  exercised  a  very  decisive 
influence  in  the  encouragement  of  export  industries. 

The  same  may  be  said  of  native  articU's  consumed  in  the  interior  of 
the  KepubHc,  in  regard  to  which  the  hick  of  statist  leal  data  and  ndia- 
bk>  information  |)recbides  the  i)ossibility  of  determining,  witli  a  near 
ajjpi'oach  to  certainty,  the  share  due  to  the  rise  in  exchange  in  tlie 
deveh)})ment  of  our  in(histries,  for  which  reason  all  arguments  based 
on  data  and  figures  not  entitled  to  thorough  confidence  should  be 
eliminated  from  the  discussion,  so  that  the  sole  argument  to  which 
weight  nuist  be  attached  will  continue  to  be  the  factor  of  which  men- 
tion has  been  made,  viz.,  the  theoretical  argument  based  on  the  pro- 
tection afforded  by  high  rates  of  exchange  to  home  industries. 

Principal  Causes  of  the  Present  Prosperity. 

The  influence  of  the  high  rates  of  exchange  on  the  development  of 
some  of  our  chief  elements  of  wealth  being  thus  reduced  to  its  true 
proportions,  it  becomes  proper  to  say  a  few  words  in  regard  to  the  state 
of  positive  and  solid  prosperity  enjoyed  not  only  bv  the  industries  to 
which  allusion  has  just  been  made  but  also  by  all  the  national  activi- 
ties. The  coincidence  of  this  prosperity  with  the  vicissitudes  which 
the  value  of  the  Mexican  dollar  has  undergone  does  not  in  the  least 
prove  that  there  exists  an  exclusive  and  determinate  relation  of  cause 
and  efl'ect  between  them,  for,  without  denying  that  such  relation  may 
have  existed  between  the  two  phenomena  in  question  to  some  extent, 
it  is  also  true  that  other  important  factors  have  been  at  work,  some  of 
them  purely  casual  and  others  due  to  the  Government's  action. 

The  influence  of  the  former  is  not  confined  to  the  higher  scale  of 
exchange  and  prices,  but  includes  climatogical  conditions,  rendering 
possible  the  harvesting  of  good  crops  for  many  years  in  succession, 
beginning  in  1895.  In  regard  to  the  second  group  of  factors,  all  who 
have  gone  at  all  deeply  into  the  study  of  our  economical  situation  are 
well  aware  that  the  chief  influences  that  have  brought  about  the 
nation's  present  condition  of  prosperity  are  the  absolute  safeguards 
which  i)eace  has  thrown  around  life  and  property;  the  creation  of 
numerous,  rapid,  convenient,  and  cheap  routes  of  communicati(m; 
and  finally  the  complete  suppression  of  fiscal  trammels  to  the  circula- 
tion of  merchandise  in  the  interior  of  the  Republic. 

Influence  of  the  Suppression  of  the  Alcabalas. 

Much  is  continually  said  about  the  benefits  of  peace  and  the  crea- 
tion of  railways  and  other  means  of  communication  ;  but  in  investiga- 
ting the  causes  of  our  prosj)erity  sufficient  prominence  has  not  been 
given  to  the  immense  economic  transformation  wrought  by  the  aboli- 
tion of  the  very  ancient  system  of  "  alcabalas  "  which  had  been  the 
source  of  all  the  trammels  and  obstacles  that  could  be  devised  by  the 
States  of  the  Federation,  or  even  by  the  municipalities  thereof,  in  their 
efforts  to  exclude  from  local  consiniiption,  or  to  saddle  with  a  crush- 
ing load  of  taxes  all  native  pi-oducts  coming  from  other  points  of  the 
Republic.  Some  considerations  based  on  figures,  and  designed  to 
demonstrate  the  importance,  as  a  factor  of  our  prosperity,  of  the  con- 


428       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

stitiitional  reform  which  extinguished  the  "  alcabahas,"  will  not  be 
superfluous. 

The  ordinary  revenue  of  the  Federal  exchecjuer  for  the  year 
1893-04,  which  was  the  last  year  of  the  severe  crisis  through  which 
the  country  then  passed,  amounted  to  $40,till,000  and  the  gains 
secured  in 'the  next  two  years,  viz.,  $3,700,000  and  $(;,r)00,00(),  re- 
spectively, were  due  principally  to  one  of  those  favorable  reactions 
Avliich  generally  occur  on  a  vigorous  scale  after  acute  and  prolonged 
periods  of  crisis  as  well  as  to  the  exceptional  volume  of  the  added 
burden  of  fiscal  taxes  in  most  lines  of  revenue  decreed  for  the  purpose 
of  accomplishing  budgetary  equilibrium. 

The  influence  of  the  former  of  the  causes  mentioned  on  the  improve- 
ment in  revenue  in  189-1-95  and  1895-96  is  proved  by  the  yield  of  the 
import  duties  which,  by  reason  of  the  rise  in  exchange,  ought  logically 
to  have  shrunk,  and  Avhich,  nevertheless,  exceeded  those  of  the  last 
3'ear  of  the  crisis  by  several  millions  of  dollars,  notwithstanding  the 
fact  that  the  modifications  of  the  tariff'  were  of  no  scant  importance. 

In  regard  to  new  taxes  it  was  natural  that  they  should  yield  abun- 
dantly in  view  of  the  vigor  with  which  the  work  of  rehabilitating 
our  finances  was  undertaken  at  that  time.  In  the  budget  bill  for  the 
fiscal  year  1894-95,  in  which  the  various  enactments  having  new  taxes 
in  view  were  enumerated,  the  annual  yield  of  said  taxes  was  estimated 
at  $5,675,000.  It  may,  therefore,  be  unhesitatingly  affirmed  that,  up 
to  the  year  1896,  the  depreciation  of  silver,  which  had  suddenly  com- 
menced three  years  previously,  had  not  as  yet  produced  perceptible 
advantages  and  that  the  marked  improvement  which  began  to  be 
observable  in  the  volume  of  the  revenue  was  due  to  causes  that  were 
extraneous  to  said  phenomenon. 

In  the  middle  of  the  year  1896  the  constitutional  amendment  abol- 
.ishing  the  interior  custom-houses  was  promulgated,  and  when  the  new 
taxes,  which  replaced  the  "  portazgo  "  schedules,  were  made  operative 
in  all  parts  of  the  Republic,  many  sources  of  revenue,  as  was  natural, 
were  affected,  though  not  on  such  a  scale  as  might  have  been  appre- 
hended when  one  considers  the  profound  perturbation  which  a  change 
in  financial  legislation  so  far-reaching  and  so  sweeping  was  calcu- 
lated to  occasion  thi'oughout  the  country.  But,  beginning  with  the 
year  1897-98,  the  Federal  revenue  resumed  its  upward  course  until 
attaining  in  1902-1903  the  sum  of  $76,000,000,  thus  showing  an  in- 
crease of  $24,000,000  in  five  years,  a  result  that  was  not  aided,  as  was 
the  case  in  the  period  preceding  the  suppression  of  the  "  alcabalas," 
by  any  increase  of  existing  taxes  or  creation  of  new  ones.  So  far  was 
this  noteworthy  expansion  of  Federal  revenue  from  being  due  to  new 
sacrifices  on  the  part  of  the  taxpayers,  so  much  is  it  to  be  ascribed  to 
other  causes  that  shortly  after  the  amendment  had  been  made  opera- 
tive some  taxes  were  diminished  and  others  were  repealed,  until  fiscal 
burdens  became  less  than  they  had  been  prior  to  their  augmentation. 
Does  not  the  coincidence  of  a  vigorous  expansiveness  in  the  Federal 
revenue  with  the  new^  regime  of  libertj^,  created  by  the  constitutional 
amendment  of  1896,  speak  for  itself?  Could  any  comparison  of  fig- 
ures and  dates  be  more  eloquent  in  demonstra'ting  the  influence  of  the 
amendment  in  question  as  an  important  factor  in  our  growing 
rosperity  ? 

AVhcther,  however,  the  advantages  which  certain  branches  of  native 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       429 

industry  have  derived  from  the  rise  in  foreign  exchange  be  great  or 
small,  there  is  no  doubt  as  to  their  reality,  and  all  that  has  hitherto 
been  stated  does  not  tend  to  the  denial  of  those  advantages  or  to  the 
minimization  of  their  results,  but  merely  aims  at  combating  the  pro- 
}3ensity  that  has  prevailed  in  our  country  to  exaggerate  the  influence 
of  the  factor  in  question. 

Drawbacks  of  the  High  Rates  of  Exchange. 

It  is  time  now  to  consider  briefly  the  other  aspect  of  the  question. 

In  the  first  place,  the  temporar}'  character  of  the  stimulus  to  native 
production  is  obvious.  In  point  of  fact  the  enhancement  of  the  prices 
of  foreign  articles  encourages  not  only  the  production  of  similar 
native  articles,  but  also  of  those  articles  that  might  be  called  suc- 
cedaneous,  and  thereafter  graduall^y  extends  to  all  other  articles 
Avhicli  apparently  have  nothing  in  common  with  the  first  named. 
The  reason  of  this  phenomenon  lies  in  the  fact  that,  inasmuch  as  all 
native  producers  are  also  consumers,  the  enhancement  in  the  price  of 
certain  articles  of  general  consumption  naturally  entails  successive 
augmentations  in  the  cost  of  production  of  other  articles  by  virtue  of 
a  species  of  contagion.  The  upward  movement,  which  begins  with 
articles  that  are  directly  influenced  by  the  rise  in  exchange,  spreads 
imperceptibly  through  all  the  ramifications  of  national  production, 
until  finally  the  prices  of  commodities  and  services  settle  at  a  higher 
level  which  is  proportionate  to  the  depreciation  of  the  currency. 

This  has  occurred  in  Mexico  since  the  sudden  rise  in  foreign  ex- 
change, and  the  enhancement  that  began  at  that  time  in  the  prices  of 
commodities  and  of  personal  service  has  only  developed  exceptions 
where  influences  of  a  special  character  predominate — as,  for  example, 
in  the  case  of  very  active  interior  competition,  or  in  cases  wherein, 
through  the  introduction  of  machinery  or  the  oi:)ening  up  of  new 
routes  of  communication,  products  have  been  cheapened ;  and,  in  the 
matter  of  wages,  such  an  exception  is  observable  in  those  sections  of 
the  country  where  labor  is  abundant,  for  then  the  law  of  supply  and 
demand  exercises,  as  happens  in  regard  to  all  transactions,  an  in- 
fluence which  frequently  proves  more  poAverful  than  the  contrary 
influence  of  a  depreciated  currency. 

The  propitious  results  of  a  high  scale  of  exchange  are,  therefore, 
purely  transient,  being  due  to  the  unequal  conditions  in  which  cur- 
rency depreciation  suddenly  places  native  products  in  comparison 
with  similar  foreign  products  to  the  advantage  of  the  former.  When, 
therefore,  cost  prices  rise  to  the  level  of  the  barrier  created  by  the  en- 
hancement of  exchange  rates,  the  protection  aft'orded  by  that  barrier 
naturally  disappears,  and  with  it  the  chief  advantages  that  have  been 
enjoyed. 

The  production  of  silver  itself  has  not  been  able  to  escape  the  opera- 
tion of  this  phenomenon,  though,  owing  to  the  facilities  that  have 
always  been  afforded  in  our  country  for  the  conversion  of  the  white 
metal  into  coined  dollars,  it  might  have  been  supposed  that  the  de- 
preciation of  the  metal  in  question  would  not  affect  it.  It  is  an  ascer- 
tained fact  that  the  enhancement  in  the  ])rice  of  imported  articles  and 
of  similar  or  succedaneous  native  articles,  as  well  as  in  the  salaries  of 
the  higher  foreign  employees  engaged  in  the  operation  of  mines,  cur- 
tails the  profits  of  silver-producing  mining  concerns,  and  that  this 


430  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

curtailment  is  proportional  to  the  A^oliime  of  siieli  expenses  as  com- 
pared with  those  that  are  totally  independent  of  the  value  of  silver 
abroad.  Noav,  expenses  of  the  latter  class,  which  some  years  ago  were 
the  more  considerable,  are  continually  dwindling,  owing  to  the  pro- 
gressive and  transcendent  influence  of  the  depreciation  of  silver  on  all 
phases  of  national  activity ;  and  of  late  the  increase  in  freight  rates  on 
ore,  and  above  all,  the  iiicreased  taritfs  of  the  metallurgical  establish- 
ments for  the  treatment  of  ore,  both  of  which  facts  are  natural  conse- 
quences of  the  phenomena  which  we  have  been  discussing,  have  at  last 
deprived  the  white  metal  of  the  chief  advantages  that  still  belonged 
to  it  by  reason  of  the  relation  betAveen  its  cost  of  production  and  its 
selling  price. 

Nevertheless  this  drawback  is  not  the  most  serious  one,  for  a  benefit, 
however  short  its  duration,  is  still  a  benefit.  The  most  serious  argu- 
ment against  high  exchange  rates  is  the  direct  and  for  long  irre- 
mediable harm  Avhich  a  high  scale  of  prices  causes  to  a  considerable 
portion  of  the  population.  Such  is  the  testimony  that  might  be 
borne  by  thousands  of  inhabitants,  Avho  have  not  found  in  the  en- 
hanced prices  of  the  commodities  Avhich  they  sell  or  of  the  services 
which  they  render  a  suitable  compensation  for  their  extra  outlay  for 
the  things  wdiich  they  consume. 

The  poorer  classes  in  those  regions  of  the  country  Avhere  there  is  no 
great  demand  for  labor,  clerks  and  employees  earning  a  fixed  salary 
and  not  possessing  brilliant  qualifications,  persons  producing  articles 
Avhich  are  already  plentiful,  those  Avho  can  not  Avork,  and  in  general 
all  Avho  liaA'e  a  fixed  income,  are  thus  affected,  and  certainly  they  con- 
stitute a  numerous  section  of  the  community  entitled  to  cA^ery  consid- 
eration. They  are"  not  to  be  forgotten  amidst  the  choi'us  of  praise 
which  some  extremists  still  intone  in  honor  of  a  high  leA'el  of  exchange 
rates. 

Pernicious  Effects  of  the  Fluctuations  of  Exchange. 

Whatever  opinion  may  be  held  as  to  the  balance  resulting  from 
the  compensation  betAveen  benefits  and  evils  occasioned  by  the  de- 
preciation of  our  currency,  the  fact  remains  that  a  new  economic 
situation  has  come  into  being  in  Avhich  interests,  perturbed  for  years, 
haAc  finally  adjusted  themselves  to  the  new  A^alue  of  our  monetary 
standard.  Moreover,  many  other  interests  of  recent  creation  have 
been  added  to  the  old  ones,  thus  augmenting  considerably  the  national 
assets.  Let  us  not,  therefore,  look  back  Avith  longing  to  the  times 
Avhen  the  Mexican  dollar  Avas  Avorth  more  than  5  francs  and  even  more 
than  an  American  dollar;  rather  let  us  resign  ourseh^es  to  the  great 
depreciation  Avhich  it  has  undergone,  and  content  ourseh^es  Avith  in- 
quiring as  to  the  ncAv  value  Avith  Avhich  it  behooA'es  us  to  invest  it  for 
tlie  sake  of  the  general  interests  of  the  Republic. 

The  delicate  features  of  the  situation,  that  Avhich  iuA^oh^es  most 
difficulties  and  dangers,  is  not  the  depreciation  of  our  currency  in 
itself,  but  the  constant  finctuntions  in  the  price  of  the  Avhitc  metal 
which  are  reflected  in  the  rates  of  exchange. 

The  element  of  uncertainty  in  calculati(ms  can  suit  no  one.  It 
strikes  at  the  basis  of  all  forms  of  connnerce  and  industry  and  con- 
verts !)usiness  transactions  into  hazardous  speculations.  AIT  are 
agreed  as  to  the  evils  and  dangers  of  oscillating  exchange  rates;  those 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       431 

who  desire  the  depreciation  of  the  currency  fear  that  silver  may 
recover  its  quotations  of  former  times,  and  those  who  himent  the 
shrinkage  of  (he  white  metal  can  not  welcome  gains  that  are  destined 
to  proxe  ephemeral. 

This  is  precisely  the  reason  why,  as  has  been  seen,  all  the  producers 
of  exportable  articles  have  not  reaped  the  benefits  which  might  have 
been  exi)ected  to  accrue  to  them  through  the  rise  in  exchange.  This 
is  also  the  reason  why,  after  all  these  years  during  which  we  haA'e  been 
enjoying  a  natural  protection  that  has  doubled  the  price  of  almost 
everything,  only  a  portion,  perhaps,  it  is  true,  the  greater  portion,  of 
our  industries  have  progressed. 

More  than  enough  time  has  elapsed  since  silver  dropped  to  one 
half  of  its  former  value  for  men  of  enterprise  and  capitalists  to  have 
endeavored  to  reap  the  fullest  jjossible  fruit  from  the  new  economic 
situation  and  yet  they  have  not  done  it,  save  on  a  relatively  moderate 
scale,  owing  to  the  uncertainty  as  to  the  continuance  of  the  margin  of 
prices  aH'ording  protection  to  national  industries.  For  this  reason 
prosperity  has  come  only  to  undertakings  requiring  a  modest  amount 
of  capital;  to  those  which,  being  susceptible  of  establishment  in  a 
short  period  of  time,  engage  in  a  line  of  production  for  which  the 
market  is  extensive  and  safeguarded  by  inveterate  usage;  to  those 
which  have  been  specially  protected  by  the  Government,  and  to  those 
which  have  been  initiated  by  persons  Avho  have  had  faith  in  our 
future  and  whose  hopes  as  to  the  continuance  of  high  rates  of  ex- 
change have  been  realized. 

Are  we  to  remain  indefiniteh'^  in  this  situation  and  not  seek  to  do 
away  with  the  constant  menace  involved  in  the  oscillations  of  ex- 
change? Assuredly  not.  AMiether  the  depreciation  of  silver  is  good 
or  evdl  in  itself,  it  is  not  that  feature  that  need  concern  us  so  much 
as  the  uncertainty  of  tlie  value  of  our  instrument  of  exchange  in  terms 
of  the  gold  currency  of  the  nations  w4th  which  we  trade.  There  is, 
therefore,  no  room  for  vacillation  as  to  the  fundamental  problem 
which  we  are  called  on  to  solve,  and  the  sole  point  to  which  we  have 
to  direct  our  endeavors  is  that  the  means  employed  to  accomplish  the 
desideratum  of  stability  of  exchange  shall  be  at  once  efficacious  and 
expose  the  country  as  little  as  possible  to  unnecessary  expenses  and 
grave  upheavals  of  vested  interests. 

Necessity  and  ^Means  for  Stabilizing  the  Gold  Value  of  Our  Currency. 

Stability  in  the  value  of  the  currency  would  assuredly  be  attained 
in  a  simple  and  thorough  fashion  by  the  adoption  of  the  gold  stand- 
ard, that  is  to  say,  bv  the  free  coinage  of  that  metal  and  by  depriving 
coins  of  any  other  metal  of  unlimited  legal-tender  capacity;  but  the 
reasons  why  we  can  not  have  recourse  in  Mexico  to  that  radical  solu- 
tion are  Avell  known.  The  excessive  expense  that  would  be  entailed 
by  the  substitution  of  gold  coins,  or  coins  convertible  into  gold,  for 
the  silver  dollar;  the  obvious  expediency  of  retaining  in  circulation 
the  coin  which  the  people  have  been  accustomed  to  regard  as  the 
monetary  unit  for  centuries  ]3ast ;  the  severe  perturbation  that  would 
be  incidental  to  the  demonetization  of  the  white  metal,  of  Avhich  the 
production  constitutes  one  of  the  chief  sources  of  national  wealth; 
and  various  other  reasons  equally  cogent  militate  against  an  absolute 


432       GOLD  STANDAED  IN  INTERNATIONAL  TRADE. 

change  of  standard  brusquely  effected  without  regard  for  momentous 
interests  and  time-honored  traditions. 

The  only  method  that  can  be  adopted  to  bring  about  stability  in 
foreign  exchange  is  the  one  pointed  out  by  the  official  commissioners 
who  have  studied  the  question  and  by  numerous  publicists,  viz.,  the 
adoption  of  the  gold  standard  with  silver  coins  in  circulation,  reserv- 
ing the  use  of  gold  coins  also  for  a  later  date.  By  this  course  several 
million  kilograms  of  silver  bearing  the  Mexican  mint  stamj)  will  be 
kept  in  circulation,  larger  quantities  of  the  same  metal  will  be  used 
later  on  for  new  coinage  purposes,  and  the  disappointments,  opposi- 
tion, and  conflicts  to  which  a  complete  change  of  currencies  would 
give  rise  will  be  obviated. 

Now  there  are  only  two  ways  for  bringing  about  fixity  in  the  value 
of  silver  coins  as  measured  by  gold,  without  having  recourse  to  uni- 
versal bimetallism,  which,  aside  from  the  fact  that  it  is  not  a  very 
sure  system,  is  at  present  absolutely  impracticable.  Those  two  ways 
are  either  the  artificial  maintenance  of  the  reciprocal  relation  of  the 
price  of  the  two  precious  metals  in  the  world's  chief  markets  or  the 
limitation  of  the  volume  of  coin  in  the  Republic  to  the  quantity 
strictly  necessary  for  the  requirements  of  circulation,  thus  emanci- 
pating the  value  of  that  coin  from  the  value  of  the  metal  of  which  it 
is  composed. 

To  regulate  the  prices  of  substances  which,  like  silver  and  gold,  are 
produced  in  abundance  in  various  parts  of  the  world,  and  for  which 
there  is  an  universal  demand,  would  be  an  impracticable  undertaking 
especially  since  the  disruption  of  the  agreement,  existing  de  facto 
among  almost  all  the  chief  powers,  to  coin  unrestrictedly  unlimited 
legal-tender  money  from  both  metals.  At  one  time,  it  is  true,  there 
was  some  talk  of  curtailing  the  output  of  silver  in  order  to  increase 
the  demand ;  but  Mexico  would  have  been  the  last  country  to  counten- 
ance such  an  idea,  for  the  reason,  among  others,  that  she  is  the  largest 
producer  of  silver  and  that  the  winning  of  that  metal  from  her  soil 
is  intimately  bound  up  with  the  winning  of  other  metals  which  con- 
stitute a  source  of  great  wealth  to  the  nation. 

Certain  negotiations  conducted  last  year  by  the  Commission  on 
International  Exchange,  which  the  Government  sent  to  Europe,  must 
not  be  confused  w^th  the  project  just  alluded  to.  It  may  be  paren- 
thetically observed  that  among  other  instructions  given  to  that  Com- 
mission, which  are  already  known  to  the  public,  was  one  that  enjoined 
upon  its  members  to  confer  with  the  representatives  of  certain  for- 
eign governments  as  to  ways  and  means  for  lessening  the  fluctuations 
of  silver  due  to  governmentrJ  acts  and  to  endeavor  to  bring  about  the 
suppression  of  certain  trannnels  which  hinder  a  larger  consumption 
of  that  metal.  With  this  end  in  view  stress  was  laid  on  the  manifest 
injury  sustained,  both  by  silver-standard  countries  and  other  coun- 
tries trading  with  them,  by  reason  of  the  continued  oscillations  in 
exchange  occasioned  by  untiuiely  purchases  of  bar  silver  by  the  chief 
govoriiments  of  the  world— purchases  that  can  be  easily  regulated 
when  their  purpose  is  to  meet  the  normal  requirements  of  monetary 
circulation.  Moreover,  the  Commission  conducted  an  active  propa- 
ganda in  behalf  of  silver,  on  the  one  hand  removing  the  prejudices, 
antipathies,  and  errors  that  prevailed  in  regard  to  the  production  and 
use  of  that  metal,  and,  on  the  other,  indirectly  encouraging  its  con- 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       433 

sumption  through  the  endeavor  to  open  up  new  markets  arid  to  abol- 
ish certain  fiscal  restrictions. 

Unfortunately,  our  efforts,  though  fruitful  in  certain  respects,  haVo 
not,  as  far  as  the  points  just  allucled  to  are  concerned,  been  attended 
with  any  other  appreciable  effect  than  that  of  toning  up  to  some 
extent  the  bar  silver  market  and  ushering  in  an  era  less  somber  for 
the  white  metal  than  the  very  critical  circumstances  through  which  it 
was  passing  when  the  Government  took  the  first  steps  toward  inter- 
national consideration  of  the  question. 

It  is  therefore  necessary  to  adopt  resolutely  the  second  of  the 
courses  mentioned,  with  a  view  to  achieving  stability  in  international 
exchange — viz.,  to  impart  to  our  monetary  unit  a  value  based  not  on 
silver  but  on  gold.  This  is  the  course  recommended  alike  by  the  prin- 
ciples of  science  and  the  teachings  of  experience,  and  it  oners,  more- 
over, the  immense  advantage  of  being  controllable  by  the  public 
powers. 

In  order  to  impart  to  coins  a  value  which  shall  be  independent  of 
the  value  of  the  metal  composing  them,  it  is  indispensable  to  appreci- 
ate them,  and  no  other  ways  are  known  of  doing  this  than  either  to 
make  them  convertible,  at  the  pleasure  of  the  holder,  for  other  coins 
of  greater  value,  or  to  bring  about,  through  relative  scarcity  of  sup- 
ply, a  demand  such  as  will  lead  those  who  need  coin  to  submit  to 
greater  sacrifices  than  before  in  order  to  procure  it. 

The  reasons  why  we  can  not  yet  have  a  silver  coin  convertible  at 
any  moment  into  gold  coin  ha^'e  already  been  stated,  and  therefore  the 
solution  is  to  be  sought  in  the  appreciation  of  the  silver  coin  by  means 
that  will  be  attended  with  the  minimum  of  detriment  to  vested  rights 
and  interests,  as  well  as  to  future  transactions. 

For  this  object,  the  first  step  to  be  taken  in  the  path  of  monetary 
reform  is  the  adoption  of  the  principle  whereby  just  that  amount  of 
coin  which  is  necessary  to  realize  the  desired  result,  and  no  more,  is 
to  be  struck.  This  principle  is  opposed  to  that  which  hitherto  has 
been  the  fundamental  rule  of  our  whole  system  of  legislation  in 
regard  to  the  coinage  of  the  precious  metals,  which  was  that  the  Gov- 
ernment undertook  to  convert  into  coin  all  the  gold  and  silver  offered 
by  holders  thereof  at  the  various  establishments  provided  for  the 
mintage  of  money. 

Since  the  sudden  di^'uption  of  the  immemorial  ratio  of  value  that 
had  existed  between  the  two  metals,  unlimited  coinage  could  only  be 
explicable  in  countries  where  the  gold  standard  exists  in  all  its  pleni- 
tude and  in  countries  which  retain  the  silver  standard;  but  in  no 
manner  is  it  explicable  in  countries  that  desire  to  have  a  monetary 
system  based  on  both  metals.  If,  in  order  to  secure  stability  of  for- 
eign exchange,  we  are  constrained  to  part  with  the  silver  standard, 
there  is  no  objection  that  can  be  urged  against  the  repeal  of  the  sys- 
tem of  free  coinage  or  against  the  adoption,  as  the  immutable  basis  of 
our  future  monetary  regime,  of  the  principle  that  coinage  nnist  be 
subordinated  to  the  demand  arising  from  the  activity  of  the  internal 
and  external  transactions  of  the  Kej^ublic. 

Few  measures  have  be(>n  or  will  be  so  much  discussed  and  contro- 
verted as  the  suppression  of  the  right  of  having  silver  converted  into 
coined  dollars.  There  are  two  equally  important  causes  for  these 
objections.  One  is  the  loss  and  trouble  which  the  reform  might  occa- 
S.  Doc.  128,  58-3 28 


434       GOLD  STANDAKD  IN  INTEKNATIONAL  TRADE. 

sion  directly  to  mining  men,  who  wonld  have  to  look  elsewhere  than 
to  the  mints  for  a  customer  for  their  silver,  and  the  other  is  the  real 
losses  that  would  accrue  to  man}'^  through  the  disappearance  of  tht; 
profit  arising  from  the  difference  in  value  between  the  silver  coin  and 
the  metal  contained  in  it. 

Objections  of  Silver  Producers. 

Deferring  examination  into  the  former  kind  of  losses  to  which  allu- 
sion has  just  been  made,  it  is  most  desirable  to  take  up  the  latter,  for 
their  consideration  is  the  consideration  of  the  weightiest  objections 
which  have  been  made  to  the  projected  reform,  and,  therefore,  when 
they  are  once  disposed  of,  it  will  be  extremely  easy  to  answ^er  other 
objections. 

The  disassociation  between  the  value  of  our  silver  coins  and  the 
value  of  bar  silver  will  entail  loss  to  those  who  derive  advantage  from 
the  identification  of  the  two.  And  who  are  the  persons  Avho  will  suf- 
fer this  loss?  They  are  the  owners  of  silver-producing  mines  and 
persons  wdio  look  for  advantages,  even  if  only  temporary,  from  new 
and  still  more  ])ronounced  depreciation  of  our  currency.  In  regard 
to  these  latter  little  need  be  said,  for,  as  has  been  shown  elsewhere,  the 
benefits  of  a  depreciated  currency  must,  by  their  very  nature,  be  of 
short  duration  and  can  not  continue  indefinitely,  for  it  would  be 
absurd  to  suppose  that  greater  and  still  greater  advantages  can  accrue 
to  a  community  in  proportion  as  the  instrument  of  its  payments 
dwindles  in  value. 

In  regard  to  the  owners  of  silver  mines,  there  can  be  no  doubt  that 
the  appreciation  of  our  silver  coins,  as  compared  with  silver,  will 
cause  them  loss.  The  reason  is  very  simple,  for  instead  of  being  able 
to  obtain,  as  they  have  been  hitherto,  as  many  dollars  as  can  be  coined 
from  the  silver  bars  which  they  win  from  their  mines,  they  will  have 
to  sell  those  bars  in  the  open  market  for  a  smaller  quantity  of  dollars. 
Perhaps,  latter  on,  owing  to  an  advance  in  the  price  of  the  white 
metal,  the  loss  to  silver  producers  may  give  place  to  a  gain,  but  what- 
ever may  be  the  future  of  the  metal  in  question,  the  fact  remains  that 
when  our  coins  are  invested  with  a  higher  value  than  their  intrinsic 
value,  those  producers  will  suffer.  It  is,  therefore,  not  to  be  wondered 
at  that  they  have  striven  so  vigorously  to  preserve  the  privileged 
position  in  Avhich  our  monetary  legislation  has  placed  them,  and 
thanks  to  which  they  have  been  shielded  from  the  hurtful  effects  of 
the  oscillations  in  exchange. 

A  Condition  that  is  Detrimental  to  the  Interests  of  the  Majority  is  not 

TO  BE  Maintained. 

Under  the  new  order  of  things  to  which  we  are  aspiring,  the  pro- 
ducers of  silver  will  be  placed  on  the  same  footing,  as  regards  the 
currency,  as  the  producers  of  any  other  substance  or  commodity.  The 
white  metal  will  then,  as  far  as  its  estimation  in  coin  is  concerned,  be 
subject  to  the  same  fate  as  all  other  articles  and  all  services.  Both 
theory  and  ])ractice  prove  that  the  prices  of  connnodities  fall  or  rise, 
respectively,  when  the  value  of  the  currency  rises  or  falls.  The  sin- 
gle exception  that  has  existed  and  still  exists  in  our  country  is  the 
white  metal  whose  value  has  been  identified  with  that  of  our  currency, 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       435 

and  in  truth  tlicro  is  no  argument  of  expediency  that  can  justify  this 
anomaly. 

One  can  understand  how.  at  a  certain  period  of  our  history,  the 
opinion  shouhl  have  prevailed  that  minin<j:  deserved  to  be  favored  in 
every  possible  way,  not  only  by  franchises  and  facilities,  but  by  dif- 
ferentialinu:  the  economic  condition  of  mine  owners  from  that  of  all 
other  members  of  the  connnunity.  But  at  the  present  tiniCj  however 
important  the  silver-minino;  industry  may  still  be,  the  old-fashioned 
ideas  on  this  subject  are  untenable.  It  is  well  that  the  mining  frater- 
nity should  enjoy  all  the  economic  circumstances  that  are  to  its 
advantage,  and  no  objection  would  be  raised  to  its  continuing  to  be 
protected  by  monetary  legislation  against  the  risks  and  drawbacks 
incidental  to  oscillations  in  exchange,  were  it  not  that  that  protection 
is  hurtful  to  all  the  other  interests  of  the  comnmnity  with  wdiich  the 
interests  of  the  mining  fraternity  are  not  only  not  identical  but  openly 
antagonistic,  for  a  condition,  Avhich  to  the  mining  class  is  an  incentive 
and  a  guaranty,  is  to  others  fraught  with  uncertainty  and  loss,  and 
what  constitutes  a  privilege  in  favor  of  the  producers  of  a  given 
article  is  a  stumbling  block  to  the  rest  of  the  country's  inhabitants. 
Is  this  equitable?  The  answer  is  obvious.  If  fixity  in  the  value 
of  the  currency  is  the  desideratum  of  the  connnunity,  and  if  that  fix- 
ity can  not  be  attained  as  long  as  the  value  of  the  currency  is  depend- 
ent on  the  price  of  the  white  metal,  there  is  no  consideration  that 
ought  to  influence  the  Government  to  maintain  a  condition  that  is 
detrimental  to  the  interests  of  the  great  majority  of  the  nation's 
inhabitants. 

The  Cessation  of  Identity  in  Value  between  the  Currency  and  Bar  Silver 
will  not  be  so  hurtful  to  mining  interests  as  is  thought. 

Moreover,  if  we  examine  carefully  the  relations  existing  between 
the  production  of  silver  and  foreign  exchange,  we  must  arrive  at  this 
conclusion:  That  the  stabilization  of  exchange,  even  though  accom- 
plished at  the  expense  of  the  identity  in  value  that  has  always  existed 
l3etween  our  currency  and  silver  bullion,  will  not  be  as  hurtful  to  the 
to  the  exploitation  of  silver  mines  as  might  at  first  sight  be  supposed. 

In  the  first  place,  the  labors  of  the  monetary  commission  have 
demonstrated  that  not  all  mining  concerns  will  suffer  to  the  same 
extent  through  the  suspension  of  coinage,  but  that  in  many  cases  the 
loss  will  be  so  slight  as  not  to  affect  the  fortunes  of  the  concerns  in 
question  at  all.  It  has  also  been  proved  that  an  enhancement  in  the 
prices  of  certain  articles  which  are  indispensable  to  mining;  the 
increase  in  freight  rates  which  so  largely  affect  the  price  of  ore;  and, 
finall}',  the  advance  in  salaries  and  wages  which,  if  not  yet  very 
marked  in  some  mining  districts,  has  in  others  reached  a  very  high 
])ercentage  and  which  before  long  Avill  become  general  in  proportion 
as  labor  grows  scarce,  will  in  the  end  cause  silver  mijiing  to  forfeit 
the  greater  part  of  the  advantages  which  it  enjoys. 

In  corroboration  of  this  view  the  experience  of  mining  concerns  sit- 
uated in  the  States  along  the  northern  border  may  be  cited.  The 
persons  interested  in  those  concerns,  accustomed  as  they  are  to  \n\y 
salaries  and  wages  and  the  cost  of  almost  everything  that  they  need 
in  a  silver  price,  which  is  the  equivalent  of  the  gold  j)rice  of  tlie  saine 
commodities  and  services  in  American  territory,  are,  among  mine 


436       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

owners,  those  wlio  raise  fewest  objections  to  the  project  of  stabilizing 
exchange,  and  it  may  even  be  said,  without  exaggeration,  that  in  gen- 
eral they  are  in  favor  of  that  project. 

It  is  true  that  the  foregoing  considerations  refer  principally  to  the 
effects  of  the  rise  in  exchange,  whereas  the  privileged  situation  of  the 
mining  man  is  due  to  unrestricted  coinage;  but  the  continual  oscilla- 
tions in  exchange  influence  to  such  an  extent  the  prices  of  all  com- 
modities that,  however  great  may  be  the  advantages  which  the 
mine  owner  reaps  by  being  able  to  have  his  silver  converted  into 
dollars,  the  day  is  bound  to  come  when  those  advantages  will  be 
eclipsed  by  the  benefits  Avliich  he  will  derive  from  stability  in  the 
value  of  the  national  currency. 

A  pertinent  reflection,  which  may  be  made  in  order  to  determine 
the  real  scope  of  the  effects  that  will  flow  from  the  suspension  of  free 
coinage,  is  supplied  by  the  situation  in  which  the  mining  industry 
has  periodically  been  placed  in  recent  years.  It  is  a  well-known  fact 
that  during  the  first  six  months  of  each  year  payments,  which  for  any 
reason  have  to  be  made  abroad,  are  effected  wholly  by  means  of 
drafts,  and  that  metallic  money  is  not  brought  into  requisition  in  any 
way,  whereas  in  the  months  from  July  to  December  it  becomes  neces- 
sary, in  order  to  complete  those  payments,  to  ship  coined  dollars. 
This  phenomenon  is  due  to  the  fact  that,  inasmuch  as  our  exporta- 
tions  are  larger  in  the  first  part  of  the  year,  there  is  a  more  plentiful 
offer  of  drafts  made  out  against  them.  The  difference  between  the 
price  that  is  paid  for  a  draft  "and  the  cost  of  the  exportation  of  an 
equivalent  amount  of.  coined  dollars  is  sometimes  as  high  as  8  per 
cent,  and  it  creates,  as  far  as  the  vendors  and  exporters  of  silver  are 
concerned,  a  situation  analogous  to  that  which  will  result  from  the 
suspension  of  coinage. 

A  recent  and  very  striking  example  of  this  situation  is  afforded  by 
the  exchange  market  during  the  ten  months  that  have  elapsed  of  the 
present  year,  for  not  only  did  the  rates  of  foreign  exchange  deviate 
from  the  price  of  bar  silver  during  the  customary  period,  which,  as 
has  been  said,  is  from  January  to  June,  but  the  condition  in  question 
has  endured  to  date,  thanks  to  the  abundance  of  drafts  on  the  mar- 
ket due  to  the  exceptional  influx  of  capital,  an  influx  which,  under 
proper  direction,  has  kept  the  rate  of  exchange  for  several  months 
past  in  the  neighborhood  of  215  on  New  York,  when  parity,  on  the 
basis  of  silver  values,  has  ranged  from  217  to  235. 

It  is  true  that  not  all  the  silver  mined  in  the  country  is  subject  to 
the  loss  in  question,  but  only  that  whicli  can  not  forthwith  be  coined; 
but  that  loss,  which  as  has  been  seen  is  wont  to  be  somewhat  heavy, 
affects  more  than  three-fourths  of  the  output  of  the  white  metal,  con- 
sisting of  the  exports  thereof  in  the  form  of  ore,  sulphides,  cyanides, 
impure  bars,  pigs  of  argentiferous  lead,  copper  mattes,  etc.  The 
owners  of  l^ars  which  come  up  to  the  standard  exacted  by  the  mints, 
alone  escape  the  effects  occasioned  by  the  divergence  between  the 
rates  of  exchange  and  the  price  of  bar  silver. 

The  situation  of  the  mining  interest  will  not,  therefore,  change 
greatly  for  the  Avorse  when  a  passing  condition,  which  has  recurred 
for  years  ])ast  during  the  months  when  there  is  an  abundant  supply 
of  drafts  on  foreign  points,  becomes  permanent  and  common  to  all 
the  months  of  the  year.  The  drawback  in  the  case  of  those  who 
already  feel  it  will  probably  be  intensified,  but  its  effects  are  already 


GOLD  STANDARD  TN  INTERNATIONAL  TRADE.       437 

known,  and  thorofore  capable  of  being*  gauged  and  combated.  In 
any  e\ent  it  is  not  too  ninch  to  say  that  the  loss  arising  i"roni  the 
appreciation  of  the  cnrrency  will  not  be  as  great  as  some  persons 
claim  and  certainly  not  irremediable. 

Exaggerations  in  the  Picture  Drawn  by  the  Partisans  of  Unrestricted 
Coinage — Compensations  That  Wiix  Come  to  the  Mine  Owners  Through 
the  Change  in  System. 

It  nnist  be  owned  that  the  picture  painted  by  the  partisans  of  free 
coinage,  in  oriler  to  emphasize  the  mischievous  effects  of  the  reform 
under  consideration,  is  exaggerated.  One-half  of  the  mining  con- 
cei-ns  in  the  country  ruined  ;  hundreds  of  thousands  of  people  reduced 
to  want;  the  consumption  of  agricultural  and  manufactured  products 
curtailed;  a  contraction  in  the  volume  of  connuercial  transactions  and 
railwaj^  traffics,  and  many  other  calamities  are  the  features  of  that 
l^icture.  Those  who  thus  argue  do  not  assuredly  reflect  that,  if  it  is 
true  as  said,  that  a  great  number  of  mining  concerns  operate  at  a  loss, 
their  closing  down,  far  from  being  a  misfortune,  will  in  reality  be  an 
advantage,  obviating  an  useless  employment  of  capital  and  energy. 
Nor  do  they  reflect  that  if  it  should  become  impossible  to  keep  up 
work  in  certain  mines  there  will  not  be  lacking  others  producing  dif- 
ferent metals,  which  will  either  begin  to  be  exploited  or  will  be 
exploited  on  a  larger  scale  than  at  present,  owing  to  the  influx  of  cap- 
ital attracted  by  stability  of  exchange:  or  that,  if  unfortunately 
employment  becomes  scarce  in  certain  mining  districts,  the  mine 
hands  will  be  able  to  emigrate  to  other  districts  as  the  same  class  has 
frequently  done  before  in  our  mining  annals;  or  that,  in  fine,  some 
of  the  losses  that  will  be  sustained  by  our  sih'er-mining  industry  are 
susceptible  of  being  completely  remedied  or  at  least  of  being  miti- 
gated by  means  of  sundry  compensations  wdiich  eventually  may  more 
than  counterbalance  the  damage  sufl'ered. 

Moreover,  it  is  unquestioned  that  the  real  losses  wdiich  the  curtail- 
ment of  the  value  of  silver,  as  compared  with  the  value  of  our  cur- 
rency, may  occasion,  will  only  be  felt  in  proportion  as  that  curtail- 
ment of  value  becomes  accentuated.  In  consequence,  if  those  losses 
seem  likely  to  prove  irremediable  in  the  case  of  some  concerns,  they 
will  not  come  about  all  at  once.  This  will  enable  the  natural  opera- 
tion of  other  factors  which  have  largely  contributed  to  the  develop- 
ment of  mining  to  continue  their  beneficent  work  and  to  arrest  in 
time  the  disastrous  consequences  which  in  theory  might  be  expected. 
Much  is  yet  to  be  expected  from  the  extension  of  railways  and  the 
multiplication  of  metallurgical  establishments  tending  to  allay  the 
fear  that  our  production  of  silver  will  suffer  an  alarming  contrac- 
tion, especially  seeing  that  the  public  powers  will  assuredly  be  dis- 
posed to  encourage  that  production  in  other  ways,  enabling  it  to 
retain  the  high  position  which  it  has  achieved  among  the  nation's 
industries. 

Plans  for  the  Reduction  of  Taxes  on  Mining. 

In  this  connection  this  department  has  given  particular  attention 
to  the  taxes  which  directly  or  indirectly  weigli  on  the  production  of 
silver  in  order  to  single  out  those  which,  owing  either  to  their  magni- 
tude or  nature,  may  lend  themselves  to  modifications  favorable  to  the 


438       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

mining  interest.  A  revision  of  this  nature  became  imperative  as  soon 
as  the  Government's  opinion  began  to  lean  toward  the  discontinuance 
of  free  coinage,  for,  in  addition  to  reasons  of  e<iuit3^  which  reconnnend 
the  att'ording  of  compensations  when  losses  and  difficulties  are  occa- 
sioned, there  is  the  cogent  argument  that  when  the  economic  privi- 
lege which  has  so  powerfully  aided  the  mining  industry  shall  have 
disappeared,  the  reasons  of  justice  existing  for  a  portion  of  the  taxes 
borne  by  that  industry  will  also  disappear. 

In  comparing  Federal  and  local  taxes  on  mining  with  those  on 
other  forms  of  national  production,  one  is  struck  by  the  difference  in 
character  betAveen  them.  It  may  he  said,  as  a  general  proposition, 
that  mining  contributes  on  a  less  scale  than  any  other  branch  of  the 
national  wealth  to  the  local  revenue  of  the  States  and  that,  per  contra, 
it  supplies  to  the  Federal  exchequer  a  larger  sum  than  almost  any 
other  industry.  The  truth  is  that  the  2  per  cent  which  the  States  are 
empowered  to  collect  by  the  present  law  as  the  total  amount  of  their 
local  taxes  on  the  yield  of  mines  producing  the  precious  metals  is 
obviously  less  than  the  tax  which  they  collect  on  real  estate,  commerce, 
and  industries  in  general.  But  the  same  observation  can  not  be  made 
in  regard  to  the  taxes  payable  to  the  federation,  which  are  of  a  s^Decial 
character  and  which  aim  at  remunerating  given  public  services,  as 
is  the  case  in  regard  to  the  dues  for  assay,  melting,  separation,  refin- 
ing, and  mintage,  or  at  marking  the  recognition  due  for  the  benefits 
which  the  nation  extends  to  its  favorite  industry,  as,  for  example,  the 
tax  on  mining  claims  and  the  so-called  3  per  cent  stamp  tax  on  the 
extraction  of  silver  and  gold. 

The  Executive  would  be  glad,  in  point  of  tax  reduction,  to  go  to 
the  lengths  advocated  by  some  honorable  members  of  the  monetary 
connnission,  for  if,  as  a  general  rule,  it  seizes  all  opportunities  for 
reducing  fiscal  burdens,  there  are  in  the  present  case  specially  power- 
ful reasons  for  such  a  course.  However,  it  will  not  be  possible  on  this 
occasion  to  accede  to  those  wishes  to  the  fullest  extent,  owing  to  the 
magnitude  of  the  resources  Avhich  the  taxes  in  question  contribute 
toward  the  annual  expenses  of  the  federation,  and  it  will  be  neces- 
sary to  maintain,  though  on  a  lesser  scale,  those  taxes  wdiich  represent 
the  price  of  certain  direct  services  enumerated  in  one  of  the  foregoing 
paragraphs  or  compensation  for  the  right  to  exploit  mines,  for  the 
granting  of  franchises  for  the  erection  of  metallurgical  establish- 
ments, and  for  the  facilities  which  mine  owners  will  continue  to 
enjoy,  some  of  which  are  of  considerable  magnitude,  as,  for  example, 
the  free  importation  of  certain  articles. 

Other  Drawbacks  Which  the  Restriction  of  Coinage  Might  Occasion. 

A  few  words  may  be  said  in  regard  to  other  kinds  of  drawbacks 
which  may  supervene  upon  the  suspension  of  coinage.  These  other 
drawbacks  do  not  involve  the  shrinkage  in  value  which  the  white 
metal  will  undergo  when  estimated  in  our  currency  but  the  loss  of  the 
fa(;ilities  which  the  present  regime  affords  to  the  owners  of  silver  bars 
in  enabling  them  to  receive  the  value  thereof  wdthin  three  days  after 
the  presentation  of  the  bars  at  the  mints.  Notice  has  already  been 
taken  of  the  fact  that  the  owners  of  silver  bars  are  differently  situated 
as  compared  with  the  ])roducers  of  other  forms  of  the  same  metal,  and 
this  difference  is  emphasized  if  one  considers  the  facility  with  which 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  439 

(lie  foniior  obtain,  at  once  and  almost  without  loss,  the  price  of  their 
couiniodity,  for,  accordinfj;  to  luonetary  laws  aiul  the  regulations  of 
the  mints,  the  bars  need  only  to  possess  certain  ({ualitications  in  order 
to  be  forthwith  accepted  for  coinage. 

Now,  in  the  regime  which  is  proposed,  the  situation  of  tlie  owners 
of  silver  bars  will  hardly  undergo  variation,  and  in  reality  the  mining 
connnunity  will,  in  the  long  run,  be  rather  benefited  than  the  reverse. 
It  would  be  a  source  of  satisfaction  if  all  the  difficulties  arising  from 
the  monetary  reforui  were  as  easily  remediable  as  the  one  just  men- 
tioned. By  providing  arrangements  according  to  which,  when  bars 
are  not  minted  into  dollars  for  direct  exportation  or  into  subsidiary 
coins,  funds  will  be  advanced  to  the  owners  of  bars  and  the  same  will 
be  sold  for  them  on  the  best  possible  terms,  the  problem  will  have 
been  solved,  and  this  Department  is  pleased  to  announce  that  prepara- 
tions have  been  made  and  arrangements  consummated  which,  wdien  the 
time  comes,  will  enable  this  object  to  be  accomplished  at  the  minimum 
of  expense  to  those  concerned. 

The  Reimportation  of  Dollars  must  be  Prohibited, 

Inasmuch  as  the  expediency  of  imparting  to  our  currency  a  fixed 
value  in  relation  to  gold  has  been  recognized  in  principle  and  it  has 
been  demonstrated  that  that  fixity  can  not  be  attained  while  the  free 
coinage  of  silver,  which  prevents  the  appreciation  of  said  currency, 
is  maintained,  a  natural  consequence  of  those  premises  is  that,  in 
addition  to  restricting  coinage,  the  reimportation  of  dollar  pieces, 
which  constitute  our  monetary  unit,  must  be  prohibited.  It  is  impos- 
sible, in  etfect,  to  conceive  of  a  currency  being  invested  with  a  higher 
value  than  its  intrinsic  value  as  long  as  the  coinage  thereof  depends 
exclusively  on  the  pleasure  of  persons  owning  silver  bars;  but  it  is 
equally  impossible  to  conceive  of  that  result  being  brought  about 
unless  the  reimportation  of  dollars,  which  circulate  in  profusion 
abroad,  particularly  in  the  countries  of  the  Far  East,  is  prevented. 

It  might  be  objected  that  this  latter  course,  or,  in  other  words,  the 
rejection  by  a  nation  of  its  own  coin  wdien  said  coin  has  once  left  the 
territory  of  that  nation,  is  not  quite  proper ;  but  this  view,  which  as 
a  general  proposition  seems  reasonable,  is  not  applicable  to  our  special 
case,  altogether  aside  from  the  w'eighty  considerations  w^hich  amply 
justify  the  course  in  question. 

It  may  be  stated  at  once,  with  entire  truth,  that  the  coined  dollars 
which  are  shipped  to  the  United  States  and  Europe  are  not  remitted 
as  money  (as  are  the  specie  shipments  made  by  other  nations  for  the 
settlement  of  their  trade  balances),  but  are  exported  as  merchandise 
pure  and  simple,  subject  like  other  merchandise,  as  far  as  their  price 
is  concerned,  to  the  demand  existing  therefor.  Mexico  exports  dol- 
lars in  the  same  way  as  she  exports  silver  bullion  or  any  other  com- 
modity for  which  there  is  a  market  abroad,  whereas  other  nations 
only  export  specie  in  order  to  liquidate  their  bills  in  various  markets. 
It  is  no  argument  to  say  that  the  Mexican  dollar  circulates  as  cur- 
rency in  certain  portions  of  Asia,  for  it  is  not  legal  tender  there  nor 
can  the  fact  in  question  plead  any  international  sanction  in  its  behalf. 
If  our  dollar  circulates  in  those  countries,  it  is  because  their  inhab- 
itants are  accustomed  to  its  design  and  know  that  the  coins  which 
bear  it  contain  a  given  quantity  of  silver.     They  care  for  no  other 


440  GOLD    STATTDARD    Hit   liTTERNAT TOif At    TtlADB. 

aspect  of  the  case  and  certainly  never  give  a  thought  to  the  legal 
value  of  the  coin  in  the  country  of  its  origin. 

On  the  other  hand,  if  the  appreciation  of  the  dollar  over  the 
silver  which  it  contains  is  to  be  the  fruit  of  the  efforts  and  sacrifices 
of  the  Mexican  nation,  it  would  be  by  no  means  just  that  the  profit 
involved  in  that  operation  should  be  enjoyed  by  persons  in  foreign 
countries  who  have  accepted  the  dollar  merely  for  its  intrinsic  value, 
without  ever  entertaining  the  remotest  intention  of  utilizing  it  as 
currency  in  dealings  with  Mexico. 

Thusno  one  will  be  injured  by  the  prohibition  to  reimport  Mexican 
dollars,  and  in  order  that  the  country  may  not  become  liable  to  even 
a  shadow  of  reproach  in  this  respect,  a  period  of  time  may  be  allowed 
within  which  persons  desiring  to  reimport  dollars  may  do  so. 

Expediency  of  Retaining  the  Fineness  and  Design  of  the  Present  Dollar, 

It  seems  timely  to  say  here  a  few  words  on  the  advisability,  while 
effecting  the  reform,  of  retaining  the  monetary  unit  which  has  been 
in  use  to  this  date,  viz.,  the  silver  dollar  weighing  27.073  grams  and 
having  a  fineness  of  0.9027. 

This  Department  does  not  propose  to  discuss  the  arguments  offered 
by  publicists  in  favor  of  the  reduction  of  the  quantity  of  silver  con- 
tained in  the  Mexican  dollar,  for  those  arguments  are  outweighed  by 
the  urgency  of  respecting  the  ti-aditional  custom  of  the  inhabitants  of 
this  country,  causing  them  to  accept  as  the  basis  of  their  transactions 
the  old  coin  of  10  "  dineros  "  20  grains,  which,  with  almost  inappreci- 
able differences,  is  the  same  as  continues  to  be  coined  to  this  day. 
Great  as  might  be  the  advantages  obtained  through  a  diminution  of 
the  degree  of  fineness  or  the  metallic  contents  of  the  dollar  piece,  they 
assuredly  would  afford  no  compensation  for  the  immense  perturba- 
tions that  would  arise  from  the  suspicion  with  which  the  public  would 
regard  a  coin  of  lessened  intrinsic  value.  In  giving  up  the  profit  that 
woidd  be  derived  from  coining  a  dollar  of  lower  intrinsic  value  than 
its  legal  value,  and  in  foregoing  an  advantage  more  important  still, 
viz.,  that  such  diminution  in  value  would  render  still  more  remote  the 
probability  that  the  intrinsic  value  of  the  dollar  might  some  day, 
through  an  advance  in  the  price  of  silver  bullion,  exceed  its  legal 
value,  the  Government  will  hold  its  sacrifice  light,  if  thereby  it  is 
possible  to  ward  off  the  dangers  and  troubles  that  would  be  occasioned 
by  the  disfavor  with  which  the  public  would  receive  a  dollar  of  less 
weight  and  fineness  than  the  old  one. 

This  desire  to  give  no  cause  for  alarm  or  distrust  has  moved  the 
Executive  to  propose  the  retention  of  the  present  Mexican  dollar  not 
only  with  the  same  quantity  of  silver  as  it  now  has,  but  with  the  same 
design  and  subject  to  the  same  methods  of  mintage,  at  least  for  some 
time  to  come  until  the  consequences  of  the  new  system  can  be  observed. 

Indeed,  a  change  in  the  design  of  the  dollar,  without  any  change  in 
its  fineness  or  its  weight,  could  only  be  explained  by  the  desire  to  pre- 
vent frauds  which  might  be  committed  through  the  reimportation,  in 
sjnte  of  the  legal  prohibition,  of  dollars  circulating  abroad.  Now 
this  precaution  would  be  costly  and  useless — costly,  because  it  Avould 
involv(^  the  recoinage  of  all  the  dollars  held  l)y  the  inhabitants  of  the 
Kepiiblic  and  useless  for  the  reasons  which  may  be  briefly  exjilained: 

There  is  a  fact  which,  however  deficient  may  be  the  explanations 


GOLD   STANDARD   IN   INTERNATIONAL   TRADE.  441 

ollVrcd  in  regard  to  it,  has  all  the  force  of  an  incontrovortible  truth, 
and  that  fact  is  the  constant  absorption  of  silver,  and  particularly 
of  Mexican  dollars,  by  the  countries  of  eastern  Asia.  The  white  metal 
that  penetrates  those  regions  never  comes  forth  again;  it  might  be 
lost,  or  anniiiilated  or  transformed,  for  all  the  trace  which  it  leaves 
behind  it.  The  current  which  carries  silver  alon^  to  a  final  destiny 
which  is  unknown,  but  which  exists  in  some  form,  is  too  strong  to  per- 
mit of  apprehension  that  any  considerable  portion  of  our  dollars  will 
turn  back  and  penetrate  anew,  in  the  form  of  contraband,  into 
Mexican  territory. 

Again,  what  incentive  is  there  for  such  contraband  operations? 
The  sole  inducement  would  be  the  premium  which  the  coined' dollar 
would  enjoy  in  Mexico  over  the  commercial  value  of  its  silver  con- 
tents. From  this  premium  it  would  be  necessary  to  deduct  the 
freight  rates  from  the  markets  of  the  Far  East,  commissions,  minor 
expenses,  and  the  very  heavy  disbursements  that  are  always  incidental 
to  any  dangerous  enterprise,  such  as  the  passing  of  contraband  goods 
which  are  difficult  to  hide,  when  also  the  penalties  are  severe. 

Tn  case  the  views  of  the  Executive  in  regard  to  the  gold  value  with 
Avhich  our  dollar  is  to  be  invested  are  accepted,  the  appreciation  of 
that  dollar  over  the  price  of  bar  silver  will  not,  even  assuming  a 
heavy  decline  in  the  latter  metal,  exceed  20  per  cent,  and  therefore  it 
is  quite  certain  that,  for  the  sake  of  a  profit  relatively  so  inconsider- 
able no  one  will  venture  to  run  the  gauntlet  of  the  laws  which  are  to 
prohibit  the  reimportation  of  dollars,  any  more  than  counterfeiters 
have  ventured  to  imitate  the  coins  of  those  countries  in  which  silver 
circulates  as  unlimited  or  almost  unlimited  legal  tender,  though  this 
operation  would  be  attended  with  a  profit  three,  four,  five,  and  even 
more  times  as  great.  There  is  no  doubt  that  an  explicit  and  severe 
body  of  laws  will  afford  an  insurmountable  barrier  to  any  attempt  at 
fraud.  It  must  also  be  borne  in  mind,  as  a  further  reason  for  dismiss- 
ing all  fears  of  the  clandestine  reimportation  of  dollars,  that,  owang 
to  the  innate  suspicion  of  oriental  races,  by  whom  our  dollars  are 
used,  the  bankers  circulating  them  have  been  accustomed  for  cen- 
turies past  to  stamp  them  with  a  special  mark  and,  according  to  infor- 
mation received  from  banking  establishments  in  the  Far  East,  almost 
all  the  Mexican  dollars  in  circulation  bear  this  stamp,  and  therefore 
they  could  not  be  reintroduced  into  this  country  without  revealing 
their  contraband  character  and  without  also  enlisting  our  own  people 
in  the  prevention  of  their  importation  through  their  refusal  to  receive 
disfigured  coins  debarred  from  legal  circulation. 

The  Value  of  the  Currency  is  to  Be  Enhanced  Within  Prudent  Limits. 

Up  to  what  point  is  it  desirable  that  the  value  in  gold  of  the  Mexi- 
can dollar  should  be  made  to  rise?  Or,  in  other  words,  wdiat  is  the 
equivalent  in  grams  of  fine  gold  at  which  the  present  silver  dollar  is 
to  be  valued  in  order  best  to  conciliate  the  manifold  national  inter- 
ests? This  question  calls  for  explanations,  as  does  also  another  ques- 
tion of  mere  procedure  which  is  intimately  bound  up  with  the  former, 
and  that  other  question  is  the  following:  Ought  an  endeavor  to  be 
made  to  attain  the  new  legal  parity  rapidly,  or  ought  its  attainment 
to  be  accomplished  in  a  more  or  less  lengthy  period,  through  the 
action  of  time  and  the  gradual  development  of  public  wealth  ? 


442  GOLD    STANDARD    IN    INTERNATIONAL   TRADE. 

An  appreciation  of  the  currency  is  indispensable,  as  has  been  seen, 
in  order  to  disassociate  its  value  from  the  value  of  the  metal  compos- 
ing it ;  but  this  enhancement  in  value  is  susceptible,  in  proportion  to 
its  magnitude,  of  causing  evils  of  a  different  kind.  In  the  first  place, 
the  inverse  ratio  effect  which  it  produces  on  the  prices  of  all  commodi- 
ties brings  up  the  serious  problem  of  protection  to  native  industries. 
A  contraction  of  the  currency,  or,  what  is  the  same,  a  decline  in  for- 
eign exchange,  constitutes  a  menace  to  those  native  industries  which 
can  only  thrive  on  a  high  scale  of  prices  for  the  products  of  consump- 
tion ;  and  the  export  industries  and  most  of  the  manufacturing  indus- 
tries are  thus  situated.  Care  must,  therefore,  be  taken  not  to  exag- 
gerate the  gold  value  of  our  currency,  owing  to  the  fatal  effect  which 
such  a  course  would  have  on  numerous  sources  of  wealth.  Other 
arguments  against  a  marked  enhancement  of  the  currency  may  be 
derived  from  considerations  based  on  the  relations  between  debtor  and 
creditor,  as  well  as  on  the  inconvenience  that  would  be  occasioned  in 
the  case  of  long-time  transactions  already  concerted. 

On  the  other  hand,  if  the  margin  between  the  intrinsic  value  of  the 
currency  and  its  exchange  value  is  made  too  narrow,  there  exists  the 
danger  that,  during  one  of  the  many  spells  of  fluctuation  to  which  the 
silver  market  is  exposed,  the  value  of  the  metal  might  go  above  the 
legal  parity  of  the  coined  dollar,  occasioning  an  economic  perturba- 
tion of  which  the  intensity  would  be  proportionate  to  the  lack  of 
efficacy  and  timeliness  in  the  measures  employed  to  restore  monetary 
equilibrium. 

Immediate  Determination  of  the  Legal  Parity. 

Before  determining  the  ratio  with  gold  which  is  to  be  the  goal  of 
our  silver  currency,  this  department  deliberated  as  to  whether  prefer- 
ence was  to  be  given  to  the  system  recommended  by  some  economists 
and  men  of  affairs  and  which  has  been  adopted  by  some  nations,  as, 
lor  example,  England  in  the  Straits  Settlements,  the  system,  namely, 
that  consists  in  gradually  enhancing  the  value  of  the  currency  without 
determining  beforehand  the  parity  which  it  is  desired  to  attain.  The 
arguments  that  are  adducible  for  this  method  seem  of  no  small 
weight,  appealing  as  they  do  to  the  safety  afforded  by  the  possibility 
of  observing  events  as  they  succeed  one  another  and  of  arriving  with 
certainty  at  the  ratio  that  is  most  adaptable  to  the  economic  condi- 
tions of  the  country;  but  if  it  be  considered  that  that  ratio  between  a 
silver  currency  and  gold,  varying  as  it  does  from  day  to  day,  accord- 
ing to  the  o])eration  of  the  factors  influencing  it,  is  not  accompanied 
by  clear  and  unmistakable  signs  to  indicate  when  the  end  of  the  jour- 
ney, as  distinguished  from  a  temporary  halting  point,  has  been 
reached,  it  will  be  realized  that  there  is  much  that  is  illusory  in  the 
advantages  of  tliis  method  of  arriving  at  a  definite  ]^arity. 

The  Government  has  made  up  its  mind  in  favor  of  the  opposite  sys- 
tem, for  it  believes  tliat  the  advantages  that  attend  the  immediate 
determination  of  tlie  value  to  which  it  is  to  be  sought  to  raise  the  dollar 
outweigli  the  disadvantages  of  that  course.  It  is  also  ]:>ropcr  to  state 
that  its  decision  in  this  respect  has  been  powerfully  influenced  l)y  the 
special  reasons  that  militate  in  favor  of  the  ratio  chosen,  as  well  as  by 
the  ])articularly  propitious  fact  that  the  ratio  in  question  is  the  one 
that  has  been  singled  out  by  ])iiblic  o]union  Avith  equal  persistence  and 
genei'ality. 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  443 

PAurrY   KKCOMMKNnEi)  I'ou  TiiK  PuESKNT  Sii.vicn  Doi.I.AU. 

The  parity  i)i()iK)sod  foi-  tlu'  pivsout  silver  dollar  is  that  of  75  ccnti- 
graius  t)f  line  iioUl,  a  parity  equal  to  that  of  the  Japanese  yen  and 
Avhioh  has  the  advantaire  of  niakino-  our  dollar  equal  (the  difference 
beino"  very  sliii'ht)  to  the  American  half-dollar,  which  has  been  its 
average  value  since  1S*,);1  If  durino-  the  last  two  years  its  value  has 
been  at  times  considerably  less,  the  difference  is  not  so  great  that,  even 
on  the  hypothesis  of  (he  low  (juotations  being  maintained,  it  will  olfer 
any  difficidty  to  the  attainment  of  the  new  legal  parity  by  the  simple 
methods  which  the  government  purposes  to  employ  to  that  end. 

The  parity  in  question  represents  a  ratio  of  32.5855  to  1,  which  is 
the  ratio  existing  between  the  24.4391  grams  of  pure  silver  Avhich  the 
dollar  contains  and  the  0.75  centigrams  of  fine  gold  wdiich  will  consti- 
tute the  new  unit  of  our  monetary  system.  At  one  time  the  idea  was 
to  accept  as  a  unit  the  exact  half  of  the  American  dollar,  but  inasmuch 
as  it  can  not  be  expressed  in  the  decimal  system  in  few  figures  and  the 
difference  only  consists  in  a  small  fraction  of  a  centigram  of  gold,  it 
was  decided  to  forego  exact  equivalence  in  order  to  secure  the  advan- 
tages, for  jjurposes  of  calculation,  afforded  by  the  adoption  of  the 
figure  of  0.75  or  three-fourths  of  a  gram. 

For  months  past  the  exchange  value  of  our  dollar  on  New  York  has 
been  4G  cents  to  47  cents  gold,  in  spite  of  the  fact  that  the  price  of 
silver  in  bars  has  been  relatively  lower.  As,  how^ever,  the  tendency  of 
the  white  metal  does  not  afford  any  prospect  of  considerable  improve- 
ment (for  neither  is  production  likely  to  be  curtailed  nor  the  demand 
suddenly  to  increase  to  any  great  extent)  it  would  seem,  as  far  as  fore- 
sight can  go  in  these  difficult  and  obscure  problems,  that  the  margin 
between  the  commercial  value  of  the  metal  contained  in  the  dollar  and 
the  gold  value  which  it  is  intended  to  give  to  our  monetary  unit,  is 
sufficiently  broad  to  dispel  any  fear,  at  any  rate  for  some  time  to  come, 
of  the  serious  inconvenience  that  would  be  occasioned  by  the  rise  in 
the  price  of  silver  above  legal  parity,  and  yet  is  not  so  broad  as  to 
inspire  doubt  as  to  the  ability  of  the  silver  dollar  to  attain  parity  with 
«j:old  without  serious  difficulty. 

Finally  the  parity  of  75  centigrams  of  fine  gold  per  dollar  will 
give  an  exchange  rate  on  New^  York  of  200  per  cent  approximately, 
and  it  is  undoubted  that  exchange  even  thus  reduced  Avill  still 
afford  sufficient  j^rotection  to  the  industries  wdiich  have  grown  up 
under  the  stimulus  of  the  decline  in  silver.  To  reduce  that  exchange 
rate  further  would  be  dangerous;  thus  the  legal  ratio  chosen  by  the 
Government  may  be  considered  as  the  golden  mean  amidst  the  manv 
conflicting  interests  involved  in  this  question.  And  certainly  it 
must  be  gratifying  to  the  partisans  of  monetary  reform  that  in  this 
respect,  viz.,  the  rate  of  exchange  which  conciliates  the  interests  of 
the  greatest  number,  almost  all  the  opponents  of  the  reform  are  at 
one  with  them. 

No  Effort  is  to  be  Made  to  Rrixg  About  Legal  Parity  all  at  Once. 

There  remains  to  be  considered  the  question  whether  it  is  desir- 
able to  endeavor  to  bring  about  the  legal  ]^arity  all  at  once.  Tn  order 
to  solve  this  question,  it  is  necessary  to  realize  as  nearly  as  possible 
hoAv  the  various  factors  that  will  come  into  play  in  the  new  economic 
situation  of  the  country  will  operate. 


444       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

When  the  mints  shall  have  been  closed  to  the  free  coinap:e  of  silver 
and  the  importation  of  Mexican  dollars  shall  have  been  |)r<)hibitc(l, 
the  quantity  of  the  circulating  medium,  or,  in  other  words,  the  total 
of  tokens  of  exchange,  within  the  national  territory  will  be  linjited 
to  the  stock  on  hand  when  those  measures  become  operative.  Now, 
according  to  a  principle  which  seems  to  be  well  established,  there  is 
a  relation  or  proportion,  though  it  is  almost  imjiossible  to  state  it 
arithmeticallv,  between  the  number  of  tokens  of  exchange  or  the 
quantity  of  coin  in  circulation  and  the  number  and  vohnne  of  trans- 
actions that  have  to  be  effected  therewith,  so  that  if  the  latter  increase 
and  the  former  remains  stationary  the  currency  is  enhanced. 

In  accordance  Avith  this  principle,  and  inasmuch  as  the  uninter- 
rupted progress  of  the  Republic  is  an  undeniable  fact,  the  prospect  is 
that  that  progress  will  not  be  arrested,  but  that  the  volume  of  transac- 
tions and  business  will  continue  to  increase,  necessitating  a  greater 
quantity  of  coin,  on  which  account  the  latter  wilh  appreciate  imtil 
attaining  legal  parity  with  gold,  but  will  not  go  beyond,  for  when 
once  the  limit  in  question  is  reached  the  yellow  metal  will  be  offered 
to  the  Government  in  exchange  for  silver  coins,  which  w^ill  then  be 
struck  to  augment  the  circulation. 

Statistics  prove  that  between  1882-83  and  1001-2  the  country 
retained  in  metallic  money — that  is  to  say,  in  Mexican  silver  dollars — 
an  annual  sum  of  five  millions  thereof,  approximately,  representing 
the  indispensable  supply  to  meet  the  increased  requirements  of  cir- 
culation, and  this  in  spite  of  the  fact  that  during  the  period  in  ques- 
tion the  use  of  bank  notes,  checks,  and  other  instrumentalities  of 
credit,  previously  almost  unknow^n,  have  come  into  general  use  in 
our  midst,  contributing  greatly  to  stimulate  the  functions  of  the  cur- 
rency. Is  it  not,  therefore,  permissible  to  hope  that  in  future  cur- 
rency requirements  will  continue  to  increase  at  least  in  the  same  pro- 
portion? Everything  warrants  an  affirmative  answer,  and  that  the 
development  of  public  wealth,  new  facilities  for  communication,  and 
many  other  circumstances  will  add  to  those  requirements  on  a  pro- 
gressive scale.  And  in  proportion  as  there  is  a  greater  demand  for 
currency,  that  currency  will  appreciate  in  gold  value  if  its  volume 
remains  stationary,  as  will  be  the  case  when  coinage  ceases  to  be  free. 
There  will  be,  in  the  case  of  this,  as  of  all  other  social  phenomena, 
factors  operating  in  a  contrary  direction,  as,  for  example  a  still 
further  possible  increase  in  the  amount  of  fiduciary  circulation  which 
performs  the  functions  of  metallic  money  and  a  more  common  use 
of  the  instruments  of  credit  and  banking  methods,  obviating  the  use 
of  coin  and  augumenting  the  mobility  of  circulation,  but  there  will 
also  be  favoring  factors  not  the  least  of  which  will  be  the  daily 
increasing  output  of  gold.  And  in  this  way  the  appreciation  of  the 
currency  must  inevitably  in  the  long  run  take  place,  for  it  will  be 
governed  by  the  law  of  supply  and  demand,  one  of  the  most  solidly 
established  and  most  universal  principles  in  the  domain  of  political 
economy. 

The  foregoing  considerations  seem  sufficient  to  demonstrate  that 
legal  parity  will  come  about  of  its  own  accord  through  the  gradual 
operation  of  entirely  natural  causes,  of  which  the  action  must  not 
be  precipitated,  especially  in  view  of  the  fact  that  any  other  course 
would  involve  the  risk  of  provolring  any  day,  and  perhaps  simul- 
taneously, a  decline  in  prices  and  a  rise  in  the  rate  of  interest  which 


GOLD    STANDARD    IN    INTERNATIONAL   TRADE.  445 

would  occasion  a  crisis  and  would  suddenly  paralyze  the  efforts  of  the 
producing:  classes,  instead  of  allowing  time,  the  further  develop- 
ment of  public  wealth  and  the  opening:  up  of  new  sources  of  activity 
and  labor  hitherto  unknown,  to  supply  them  with  the  means  of 
adapting  themselves  to  the  new  conditions  which,  to  the  advantage 
of  the  entire  nation,  will  be  solidly  founded  on  the  stability  of 
international  exchange.  It  has  also  been  stated  elsewhere  how  dan- 
gerous it  is  to  alter  by  any  legislative  act  the  relations  between 
debtors  and  creditors  into  which  they  have  voluntarily  entered, 
and  if  on  the  top  of  a  modification  in  the  value  of  the  instrument  of 
exchanges  there  were  to  come  the  imposition  of  a  brief  period  w^ithin 
which  that  modification  would  have  to  be  eifected,  leaving  no  time 
for  the  j)rices  of  all  commodities  to  adjust  themselves  to  the  new 
legal  parity,  it  must  be  admitted  that,  however  wise  and  safe  might 
be  the  ]H'ovisions  of  the  law,  the  sacred  rights  of  one  of  the  contract- 
ing parties  would  be  violated  to  a  greater  extent  than  the  public 
welfare  seems  inevitably  to  demand. 

The  Expediency  of  Creating  a  Gold  Fund  to  Attain  and  Preserve  Stability 
IN  the  Rate  of  Exchange  is  Examined. 

There  has  been  considerable  difference  of  opinion  among  the  mem- 
bers of  the  monetary  commission  and  business  men  in  the  Republic 
and  abroad  in  regard  to  the  proposal  that  the  Government  should 
at  once  create  a  gold  fund  for  the  purpose  of  exercising  a  decisive 
influence  on  the  market  in  the  achievement  of  stability  in  our  ex- 
change rat«s  or  of  maintaining  that  stability  wdien  once  achieved. 

The  Executive  was,  in  consequence,  bound  to  give,  as  it  has  in  effect 
given,  special  consideration  to  this  point,  and  only  after  a  most  care- 
ful study  has  it  decided,  for  the  present  at  least,  in  the  negative. 
The  principal  reasons  for  that  decision  may  be  set  forth : 

"Without  entering  into  an  examination  of  the  proposal  according 
to  which  the  fund  in  question  would  be  used,  openly  and  Avithout 
limitation,  to  furnish  gold,  or  gold  drafts  on  foreign  points,  in  ex- 
change for  silver  coins  at  the  legal  parity,  to  persons  desiring  to 
make  payments  outside  of  the  Republic  (a  proposal  that  would  be 
equivalent  to  introducing  the  gold  standard  in  a  complicated  way 
that  could  in  no  manner  be  recommended),  it  is  necessary  to  take 
into  consideration  the  magnitude  of  the  sacrifice  that  would  be 
imposed  on  the  nation  in  order  to  procure  the  amount  of  gold  that 
would  be  necessary  to  exert  an  efficacious  influence  on  the  rate  of 
exchange.  The  means  to  which  it  would  be  inevitably  necessary  to 
have  recourse  in  order  to  procure  the  gold  in  question  would  be  a 
loan,  and  the  sum  that  would  have  to  be  borrowed,  according  to  the 
most  optimistic  opinions,  would  not  be  less  than  $40,000,000.  It  is 
true  that  the  credit  of  the  nation  has  improved  to  a  gratifying  extent, 
and  that,  therefore,  neither  would  the  operation  be  impracticable 
nor  would  the  sacrifice  represented  by  the  interests  on  the  loan  be 
more  than  the  exchequer  could  afford.  But  it  must  not  be  for- 
gotten that  one  ought  only  to  have  recourse  to  measures  of  this 
nature  when  they  arc  absolutely  necessary,  and  above  all  when  the 
benefits  which  they  entail  are  so  undeniable  that  they  evidently  out- 
weigh the  objections,  and  on  many  and  substantial  grounds  it  may 
seriously  be  doubted  whether  this  condition  would  be  realiaed  in  the 
present  instance. 


446       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

In  point  of  fact.  ^Yhat  do  the  advocates  of  the  gold  fund  hope  to 
accomplish  through  its  creation?  Primarily  to  bring  about  legal 
parity  either  at  once  or  very  soon;  and  this,  as  has  been  shown  else- 
where in  this  exposition,  far  from  being  a  desideratum,  would  give 
rise  to  a  rather  dangerous  situation. 

Moreover,  though,  in  the  case  of  problems  so  complex  and  ol)scure, 
it  may  not  be  w^ise  to  trust  to  the  efficacy  of  a  single  principle  nor  to 
cling  thereto  with  obstinacy,  we  may  not  disregard  the  laws  of  ratio- 
cination and  we  should  be  disregarding  them  if,  while  announcing 
that  the  fundamental  principle  of  the  reform  consists  in  subjecting 
the  currency  to  the  eft'ects  of  relative  contraction,  we  Avere  to  show 
that  we  did  not  feel  adequately  confident  that  that  contraction  Avould 
produce  its  natural  consequence — that  is  to  sny,  that  it  would  enhance 
the  gold  valuation  of  our  silver  money.  There  is,  in  fact,  all  the 
greater  reason  for  expecting  this  result  in  that,  in  spite  of  exception- 
ally adverse  circumstances,  it  has  been  achieved  in  other  countries, 
which,  without  serious  upheavals,  notwithstanding  all  that  may  have 
been  said  to  the  contrary,  accomplished,  some  time  ago,  the  object 
which  we  now  seek  to  attain. 

The  economic  progress  of  the  Republic  is  so  perceptible;  the  mate- 
rial conditions  of  its  inhabitants  are  improving  so  rapidly  and  unmis- 
takably; foreign  capital  evinces  such  eagerness  to  find  in  our  terri- 
tory a  more  remunerative  employment  than  in  other  countries,  that, 
without  erring  on  the  side  of  optimism  or  empty  presumptuousness, 
it  is  permissible  to  trust  that  when  coinage  shall  have  been  suspended, 
the  necessity  of  an  increase  of  the  circulating  medium  will  begin  to 
be  felt,  and  that  necessity  will  of  itself  cause  gold  to  flow  into  the 
Republic,  for  only  in  exchange  for  gold  will  new  silver  dollars  be 
coined  and  the  currency  augmented. 

Some  other  persons  who  argue  in  favor  of  the  reserve  fund  do  not 
regard  it  as  intended  to  inure  to  the  attainment  of  legal  parity  but 
to  the  maintenance  of  that  parity  when  attained,  within  the  narrow 
limits  of  fluctuation  to  which  foreign  exchange  is  subject  even  in 
gold-standard  countries. 

The  question  being  thus  stated,  it  becomes  necessary  to  consider 
two  classes  of  phenomena  which  are  susceptible  of  causing  grave  per- 
turbations in  the  exchange  market.  If  the  disturbing  cause  Avere  to 
belong  to  the  domain  of  politics,  domestic  or  international,  it  seems 
at  least  doubtful  whether  the  existence  of  a  gold  fund  would  suffice  to 
prevent  the  collapse  of  exchange  rates,  for  the  calamities  that  are 
inherent  to  disturbances  of  this  nature  absorb  money  in  such  quanti- 
ties and  with  such  urgency  that  the  reserve  fund  could  hardly  con- 
tinue to  be  devoted  exclusively  to  banking  purposes.  In  regard  to 
crises  of  an  economical  nature,  which  may  also  occasion  severe  varia- 
tions in  the  rates  of  exchange,  it  is  undoubted  that  they  do  not  produce 
such  violent  and  protracted  upheavals  of  the  market  as  the  other 
cause,  nor  are  they  of  a  nature  to  baffle  the  foresight  of  the  banks  and 
business  men,  who  can  almost  always  ward  them  off  or  mitigate  them 
by  efficacious  means  based  on  the  principles  which  govern  inter- 
national commerce. 

No  doul)t  situations'will  occur  in  which  a  gold  reserve  woiihl  render 
great  services,  and  undoubtedly  the  most  advantageous  nsc  that  couhl 
be  made  of  such  a  reserve  would  be  its  innnediate  etiect  on  Ww  market 
in  checking  any  brusque  movement  that  might  occur  in  the  direction 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       447 

of  a  rise  in  exchange  rates.  But  if  the  free  action  of  the  measures 
that  are  proposed  for  the  purpose  of  enhancing  the  vahie  of  the  mone- 
tary circuhition  and  bringing  about  a  higher  price  for  tlie  national 
currency,  should  prove  inefficacious  to  neutralize  the  upward  move- 
ment of  exchange  rates  and  to  restore  legal  parity,  then  the  time 
would  have  come  for  the  great  banking  institutions,  for  private 
lirms  and  business  concerns  of  all  kinds,  to  solicit  gold  loans  abroad, 
against  which  they  would  draw  with  all  the  greater  confidence  in  that, 
as  the  disturbing  factor  of  the  market  would  not  be  of  long  duration, 
the  reaction  would  in  due  course  set  in,  enabling  them  to  refund  tlie 
amounts  drawn  for  on  prohtable  terms. 

The  (Government  might  also,  if  necessary  for  the  same  purpose, 
make  use  of  its  credit  or  of  the  gold  funds  which  it  frequently  has 
at  its  disposal. 

Such,  stated  as  briefly  as  possible,  are  the  reasons  which  have  influ- 
enced the  resolve  of  the  Executive  not  for  the  present  to  create  a 
reserve  fund.  But  this  does  not  imply  any  purpose  on  its  part  not 
to  have  recourse  to  that  method  of  maintaining  monetary  parity  if 
circumstances  clearly  demonstrate  its  necessit}^  Still  less  does  it 
indicate  the  intention  of  using  for  the  needs  of  the  exchequer  the 
profits  that  may  in  future  be  derived  from  the  coinage  of  silver  in 
exchange  for  gold  at  the  legal  parity,  for  in  this  respect  the  Execu- 
tive is  fully  alive  to  the  risk  of  imparing  public  confidence  that  Avould 
be  run  b}^  converting  what  will,  in  a  certain  sense,  be  a  deposit 
intrusted  to  its  care,  into  a  source  of  revenue.  If  the  expectations  of 
this  exposition  are  realized,  the  profits  in  question  which  according 
to  the  contemplated  plan  will  not  be  held  and  handled  exclusively 
by  fiscal  agents  or  employees,  will  constitute  a  reserve  fund  which  in 
time  will  come  to  be  of  considerable  volume,  and  then  the  legislature 
will  decide  as  to  the  best  manner  of  using  and  increasing  it. 

Subsidiary  Coinage  and  the  Mintage  of  Dollars  Intended  for  Exportation. 

Coming  down  to  points  of  less  importance  than  those  above  treated, 
this  department  has  considered  that  a  radical  reform  of  our  monetary 
eystem  afforded  a  suitable  occasion  for  ridding  it  of  certain  imper- 
fections which  are  attended  with  drawbacks  of  some  moment  to  the 
country.  Contrarj'^  to  sound  economic  principles  and  the  j^ractice  of 
all  civilized  nations,  our  subsidiary  coins  are  unlimited  legal  tender 
and  are  of  the  same  fineness  as  the  Mexican  dollar,  occasioning  not 
only  excessive  expenses  for  coinage,  but  also  giving  rise  to  the  incon- 
venient condition  under  which,  while  some  portions  of  the  country 
are  afllicted  with  a  plethora  of  small  change,  causing  it  to  be  at  a  dis- 
count, other  portions  suffer  from  a  scarcity  of  token  currency  for 
payment  of  wages  and  other  small  transactions,  and  have  to  offer  a 
premium  to  procure  it.  It  is  time  that  such  anomalies  should  end, 
that  the  subsidiary  coins  now  in  circulation  be  withdrawn,  and  that 
new  coins  be  issued  subject  to  rules  that  will  in  future  obviate  the 
drawbacks  with  Avhich  the  present  ones  are  attended,  while  also  pre- 
venting Ihe  lesser  fineness  of  the  suljsidary  coinage  from  being  con- 
verted some  day  or  other  into  a  source  of  fiscal  revenue,  to  the  detri- 
ment of  the  estimation  of  tliat  species  of  currency  and  hence  to  the 
detriment  of  public  wealth. 


448  C40LD    STANDARD    IN    INTERNATIONAL    TRADE. 

• 

Again,  as  it  is  probable  that  the  oriental  nations  will  not,  at  any 
rate  for  some  time  to  come,  abandon  their  inveterate  custom  of  using 
the  Mexican  dollar,  even  though  only  in  the  nature  of  small  bars  of 
silver  of  uniform  and  recognized  fineness,  it  seems  expedient  to  main- 
tain the  Government's  power  to  coin  said  dollar  exclusively  for 
exportation  at  times  when  the  condition  of  foreign  markets  allows 
some  profit  to  be  derived  from  this  operation. 

Final  Considerations. 

It  may  seem  strange  that  in  an  affair  of  such  importance  as  is  the 
subject-matter  of  this  exposition,  and  which  has  been  so  carefully 
studied,  this  department  should  not,  in  conclusion,  submit  to  tlie 
National  Legislature  one  or  more  bills  looking  to  the  immediate 
reform  of  our  monetary  system,  but  should  content  itself  with  asking 
Congress  to  authorize  the  Executive  to  issue  the  laAvs  in  question, 
subject  to  the  terms  of  the  accompanying  project. 

In  adopting  this  form  of  procedure  the  President  of  the  Republic 
has  been  influenced  by  the  consideration  that  the  reform  can  not  be 
put  in  practice  save  after  the  realization  of  numerous  enactments  and 
measures  of  an  administrative  nature,  and  that  it  is  desirable  to  wait 
for  a  moment  when  the  conditions  of  the  silver  market  shall  not  be 
particularly  adverse,  in  order  just  then  to  decree  the  reform  in  ques- 
tion. And  inasmuch  as  said  measures  could  not  be  taken  until  Con- 
gress had  been  pleased  to  approve  the  projected  reform,  at  any  rate 
in  so  far  as  its  fundamental  principles  are  concerned,  and  as  it  would 
be  anomalous  to  defer  the  execution  of  laws,  after  their  actual  issue, 
until  a  favorable  conjunction  of  circumstances  should  occur,  the 
Executive  had  no  other  course  open  to  it  than  to  solicit  from  the 
Federal  Chambers  a  new  proof  of  the  confidence  which  they  have 
hitherto  reposed  in  it,  and  which  it  has  always  endeavored  to  use  for 
the  welfare  of  the  nation. 

In  conclusion,  the  Executive  hopes  that  if  the  monetary  reform  is 
carried  out  along  the  lines  set  forth  success  will  crown  the  efforts  of 
the  nation  to  implant  it  and  this  without  vitally  affecting  the  great 
interests  represented  by  the  mining  industry  and  the  other  industries 
involved  in  this  change,  and  also  Avithout  shock  to  the  silver  market, 
seeing  that  no  new  factors  influencing  the  price  of  bar  silver  will  be 
brought  into  play,  as  Mexico  will  be  in  a  position,  by  means  of  her 
coinage  for  exportation  and  mintage  of  subsidiary  currency,  to  use  a 
quantity  of  silver  nearly  equal  to  that  which  in  said  forms  she  has 
circulated  and  consumed  year  after  year  for  long  past. 

Be  pleased  to  report  to  the  Chamber,  of  which  you  are  the  worthy 
secretaries,  the  accompanying  bill  and  to  accept  for  yourselves  the 
assurances  of  my  courteous  consideration. 

J.   Y.  LiMANTOUU. 

To  the  ISecretaries  of  the  Chamber  of  Dejnities  of  the  F'ederal  Con- 
gress^ Present. 

Mexico,  November  16, 1904- 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  449 

The  Bill. 

Article  1.  The  Execiitivo  of  the  Union  is  empowered  to  amend 
the  monetary  hiws  of  tiie  Ropul)lic,  detenninino;  the  kinds  of  coin  that 
shall  have  leo:al  circulation;  the  value,  weight,  fineness,  and  other 
.'haracteristics  of  said  coins;  their  margin,  or  "remedy,"  both  as  to 
mintage  and  circulation,  and,  in  general,  laying  down  siich  provisions 
as  said  Executive  may  deem  necessary  to  perfect  the  monetary  system 
jind  adapt  it  to  the  economic  necessities  of  the  EepubliTc. 

In  the  exercise  of  these  powers  the  Executive  will  conform  to  the 
following  rules : 

A.  The  present  silver  dollar,  containing  24.4H91  grams  of  pare  sil- 
ver and  2.()8-l:2  grams  of  copper,  will  be  retained  and  will  be  unlim- 
ited legal  tender. 

B.  There  will  be  ascribed  to  this  silver  dollar  a  valuo  eqaivalent  to 
75  centigrams  of  pure  gold. 

C.  The  subsidiary  silver  coins  Avill  contain  a  smallei-  quantity  of 
that  metal  than  that  which,  proportionally  speaking,  they  ought  to 
have  on  the  basis  of  their  token  value  in  terms  of  the  peso  [dollar]. 

D.  These  subsidiaiy  coins  will  not  be  legal  tender  for  more  than 
twenty  dollars  in  one  and  the  same  payment  nor  will  the  bronze  coins 
be  legal  tender  for  more  than  one  dollar  in  a  single  payment;  but  the 
Government  will  designate  offices  where  private  persons  may  freely 
secure  hard  dollars  in  exchange  for  subsidiary  silver  coins  or  bronze 
coins  which  they  may  present  in  amounts  of  one  hundred  dollars  or 
multiples  thereof. 

E.  The  mints  will  not  be  obliged  to  coin  the  precious  metals  pre- 
sented to  them,  but  the  issuance  of  coined  money  of  all  kinds  will  be 
reserved  for  the  Executive,  so  that  said  Executive  may  exercise  this 
power  in  accordance  with  the  lav/s,  and  on  such  occasions  and  in  such 
quantities  as  they  may  prescribe. 

Art.  2.  The  Executive  of  the  Union  is  also  authorized  to  adopt  the 
following  measures : 

A.  To  prohibit  the  importation  of  Mexican  silver  dollars  into  the 
territory  of  the  Republic. 

B.  To  demonetize  coins  which  it  considers  desirable  to  withdraAv 
from  circulation. 

C.  To  coin  for  exportation  dollars  of  designs  antedating  the  present 
one. 

D.  To  alter,  if  found  desirable,  the  design  of  the  present  silver 
dollar. 

E.  To  permit  the  legal  circulation,  for  a  limited  period,  of  the  gold 
coins  of  other  nations,  at  the  same  time  fixing  their  value  in  Mexican 
coin,  in  case  the  standard  ounce  of  silver  in  London  goes  above  28^d. 

F.  To  modify  the  fiscal  laws  in  regard  to  mining,  lightening  the 
aggregate  burdens  which  are  borne  by  the  precious  metals  in  the  shape 
of  the  2  per  cent  coinage  tax,  the  3  per  cent  stamp  tax,  and  the  dues 
for  assay,  melting,  refining,  and  separation. 

G.  To  modify  the  laws  which  authorize  the  collection  of  a  tax  of 
$10  per  claim  on  the  title  deeds  of  mines  and  also  the  annual  tax  on 
mining  claims,  so  as  to  favor  mines  producing  the  precious  metals. 

H.  To  modify  the  law  of  June  6, 1887,  so  as  to  reduce  to  li-  per  cent 
the  maximum  of  2  per  cent,  which,  according  to  the  law  in  question, 
is  the  present  limit  of  local  taxes  on  the  value  of  the  precious  metals. 
S.  Doc.  128,  58-3 29 


450  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

I.  To  remove  or  reduce  existing  import  duties  on  articles  destined 
for  use  in  mining. 

J.  To  organize  offices,  which,  without  loss  to  the  public  exchequer, 
will  advance  money  on  the  value  of  silver  bars  and  afford  to  holders 
thereof  facilities  for  the  sale  of  said  bars  on  the  best  possible  terms, 
and,  with  this  end  in  view,  to  make  suitable  contracts  in  the  Republic 
and  abroad. 

K.  To  modify  civil  and  mercantile  legislation  in  all  matters  con- 
nected with  prestations  and  payments  in  money. 

L.  To  modify  the  precepts  of  the  banking  law  which  have  direct  or 
indirect  connection  with  metallic  currency  or  which  affect  the  instru- 
ments of  credit  or  transactions  in  exchange. 

LL.  To  appoint  a  committee  whose  functions  shall  be  to  regulate 
the  monetary  circulation  and  to  accomplish,  as  far  as  possible,  stabil- 
ity in  the  rate  of  foreign  exchange  and  to  this  end  the  Executive  may 
clothe  said  committee  with  such  powers  as  it  sees  fit  and  mnj  also 
intrust  to  it  the  manipulation  of  a  special  fund,  the  amount  of  which 
Avill  be  fixed  by  the  Executive. 

M.  To  issue  all  suitable  enactments,  including  such  as  aim  at  the 
repression  and  chastisement  of  misdemeanors  and  offenses  connected 
with  the  subject-matter  of  this  law ;  to  organize  services  and  establish 
offices  that  may  be  necessary  and  to  defray  the  expenses  needed  for 
any  of  the  purposes  hereinbefore  set  forth ;  to  which  end  the  Execu- 
tive may  suppress  or  modify  the  present  distribution  of  offices,  their 
personnel,  and  the  appropriations  and  disbursements  authorized  by 
special  laws  or  by  the  budget  of  expenditure. 

J.  Y.  LiMANTOUR. 

Mexico,  November  16, 1904. 


Appendix  E. 

THE  STRAITS  SETTLEMENTS. 

A  GOLD  STANDARD  FOR  THE  STRAITS  SETTLEMENTS. 

By  Dr.  E.  ^Y.  Kcmmcrcr,  Chief  of  Division  of  the  Currency,  Treasury  of  the 

Philippine  Islands. 

The  decade  from  1870  to  1880  was  noteworthy  in  monetary  history 
for  the  extensiA^e  substitution  throughout  the  western  world  of  a  gold- 
standard  currency  for  the  previously  dominant  bimetallic  standard. 
The  ten  j^ears  beginning  Avith  the  closing  of  the  Indian  mints  in  1893 
will  in  like  manner  be  noteworthy  for  the  extensive  substitution  in 
the  eastern  world  of  the  gold  standard  for  the  silver  standard,  which 
had  theretofore  existed  throughout  almost  the  entire  Orient  from 
time  immemorial. 

Among  the  most  recent  of  oriental  countries  to  undertake  the 
adoption  of  a  gold-standard  currency  is  the  Straits  Settlements. 
This  British  colony,  composed  of  Singapore,  Penang,  Malacca,  and 
their  dependencies,  is  one  of  the  great  entrepots  of  the  shipping  trade 
of  the  Orient.  Like  most  eastern  countries  it  has  had  a  varied  mone- 
tary experience."  The  tin  "  pice,"  the  various  kinds  of  silver  rupees, 
the  Dutch  rix  dollar,  the  Japanese  copang,  the  Carolus  dollar  of 
Spain,  the  Mexican  and  British  dollars  and  their  kindred  South 
American  coins,  as  well  as  sterling  coins  and  money  coined  by  the 
Straits  Settlements  themselves,  have  all  had  at  one  time  or  another 
a  Avide  circulation  in  the  MahiA^  Peninsula.  P>om  early  in  the  six- 
teenth century  until  the  present  time,  however,  in  spite  of  several 
attempts  to  displace  it,*  the  principal  medium  of  exchange  and  the 
real  money  of  account  of  the  Straits  Settlements  has  been  the  old 
Spanish  dollar  or  some  of  its  illustrious  descendants  like  the  Mexican 
and  British  dollar. 

In  1807,  the  year  of  the  transfer  of  the  Straits  Settlements  from 
the  control  of  the  Indian  government  to  that  of  the  secretary  of 
state  for  the  colonies,  an  ordinance  was  passed  repealing  all  laws 
making  Indian  coins  legal  tender  and  declaring  that  after  April  1 
of  that  year  "  the  dollar  issued  from  Her  Majesty's  mint  at  Hong- 
kong, the  silver  dollar  of  Spain,  Mexico,  Peru,  and  Bolivia,  and  any 
other  silver  dollar  to  l)e  specified  from  time  to  time  by  the  governor 
in  council,  shall  be  the  only  legal  tender,"  with  the  exception  of  certain 

a  An  excellent  hriof  historical  treatment  of  the  Straits  Settlements  currency 
will  be  found  in  Chalmers's  Colonial  Currency,  cbai).  38. 
&  Ibid. 

451 


452       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

subsidiary  coins.'^  Since  1871  subsidiary  coins  for  the  Straits  Settle- 
ments have  been  struck  by  the  royal  mint.  An  order  in  council,  dated 
October  21,  1890,  repealed  all  previous  laws  with  reference  to  legal 
tender  in  the  colony  and  declared  the  Mexican  dollar  the  standard  of 
value,  at  the  same  time  giving  unlimited  legal  tender  to  the  Japanese 
yen,  the  Hongkong  dollar  and  half  dollar,  and  the  American  trade 
dollar.  Prior  to  the  passage  of  the  currency  law  of  1903  two  subse- 
quent orders  in  council  of  importance  relative  to  the  currency  were 
passed,  under  dates  of  February  2,  1895,  and  October  20,  1898.  These 
orders  taken  together  removed  the  legal-tender  quality  from  the 
American  trade  dollar  and  the  Japanese  yen,  reaffirmed  the  law  mak- 
ing the  Mexican  dollar  the  standard  coin,  and  declared  that  the  Hong- 
kong dollar  and  the  recently  coined  British  dollar  should  l)e  legal 
tender  and  be  treated  as  equal  to  the  standard  dollar.  The  Straits 
currency  thus  established  was,  with  a  slight  modification,  adopted  by 
the  Federated  Malay  States. 

About  the  beginning  of  the  calendar  year  1903  the  actual  cur- 
rency of  the  Straits  Settlements,  the  Federated  Malay  States,  and 
Johore  was  roughly  estimated  as  follows : '' 

(1)  About  30  million  British  and  Mexican  dollars,  of  which  by 
far  the  larger  part  was  British  dollars,  and  of  which  nearly  a  third 
represented  coin  held  in  reserve  against  the  government's  note  issue. 

(2)  Nearly  7  million  dollars  of  Straits  Settlements  subsidiary 
coins,  of  which  it  Avas  officially  estimated  that  something  like  $300,000 
had  been  shipped  out  of  the  country. 

(3)  An  unknown  amount  of  copper  coins,  the  remainder  of  a  total 
coinage  since  1871  officially  stated  at  $1,887,500  (nominal),  of  which 
large  quantities  had  been  shipped  out  of  the  country. 

(4)  About  13  million  dollars  of  government  notes. 

The  effect  of  the  fall  in  the  gold  price  of  silver  was  similar  in  the 
Straits  Settlements  to  what  it  was  in  India,  Mexico,  and  the  other 
silver-standard  countries  of  the  world  which  had  extensive  trade  rela- 
tions with  gold-standard  countries.  The  evils  resulting  to  local  busi- 
ness from  the  rapidly  falling  and  fluctuating  exchange  with  gold- 
standard  countries  finally  became  so  serious  in  1893,  after  the  closing 
of  the  Indian  mints  and  the  calling  of  the  extra  session  of  the  Con- 
gress of  the  United  States  to  consider  the  repeal  of  the  Sherman  law, 
that  the  British  colonial  secretar}^  telegraphed  to  the  governor  of  the 
Straits  Settlements  for  a  report  as  to  possible  remedial  measures  in 
the  direction  of  securing  for  the  colony  greater  stability  of  exchange. 
In  response  to  this  telegram  a  special  committee  was  appointed  by 
the  governor  to  investigate  local  monetary  conditions  and  to  suggest 
remedial  measures.  The  committee  examined  a  considerable  number 
of  witnesses,  whom  they  considered  "  fair  representatives  of  the  think- 
ing men  of  the  colony  of  all  classes,"  and  found  that,  with  the  excep- 
tion of  the  majority  of  the  Chinese  traders,  the  witnesses  examined 
were  "  mostly  in  accord  in  declaring  that  the  fall  in  exchange  has  been 
disadvantageous  to  these  Settlements."  In  spite  of  this  fact,  however, 
the  committee  was  unable  to  agree  upon  any  j)roposition  favoring  the 
introduction  of  the  gold  standard,  and  their  report  was  divided. 

«  Report  of  the  Straits  Settlements  Currency  Committee,  London,  May,  1903, 
pp.  4  and  5. 

6  Ibid.,  pp.  5  and  6. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       453 

Half  of  the  twelvo  members  of  the  committee  favored  a  gold  standard, 
five  of  them  advocating  the  introdnction  of  the  rupee  upon  the  plan 
which  had  at  that  time  hut  recently  been  ado})ted  by  India,  provided, 
hoAvever,  that  that  i)lan  should  j)rove  a  success  in  India.  The  other 
half  of  the  connnittee,  including  all  the  native  members,  favored  a 
continuation  of  the  silver  standard." 

From  1893  to  1897  there  was  considerable  agitation  and  newspaper 
discussion  in  the  Straits  Settlements  concerning  the  advisability  of 
jidopting  a  gold  standard,  but  nothing  came  of  it  until  1897,  when,  on 
August  25,  the  committee  of  the  Singapore  Chamber  of  Conmierce 
by  a  unanimous  vole,  adopted  a  resolution  favoring  the  estal)lishment 
of  a  fixed  par  of  exchange  with  gold  countries,  and  appointed  a  com- 
mittee *■'  to  in(iuire  into  the  local  currency  with  the  view  of  calling 
attention  of  govermnent  to  the  question  of  converting  the  Straits 
currency  to  a  gold  standard." 

.The  essence  of  the  recommendations  of  this  subcommittee  may  be 
summed  up  as  follows : '' 

{(t)  The  adoi^tion  of  the  English  sovereign  as  the  basis  of  the  new 
currency,  ""with  a  Straits  dollar — fixed  at  the  value  of  2s.— subsidiary 
to  it."  The  existing  subsidiary  silver  coinage  to  continue  unchanged 
except  for  being  placed  upon  a  gold  basis. 

(h)  The  government  "  not  to  let  its  intention  be  known,  and,  when 
a  decision  is  arrived  at,  to  pass  a  law  at  one  sitting  of  the  legislative 
council,  and  immediately  thereafter  issue  a  notification  to  the  effect 
that  during  a  term  sufficiently  brief  to  prevent  importation  all  dollar 
coins  then  legally  current  in  the  colony  would  be  received  at  certain 
specified  places  and  government  currency  notes  given  in  exchange; 
and  that  after  the  expiry  of  such  terms  the  British,  Mexican,  and 
other  dollars  in  circulation  would  be  demonetized ;"  the  Federated 
Malay  States  to  promulgate  the  same  law  simultaneously. 

(e)  From  the  stock  of  silver  obtained  by  the  government  from  its 
exchange  of  notes  for  British  and  Mexican  dollars  a  limited  supply 
of  the  new  two-shilling  dollars  to  be  coined,  these  dollars  to  contain 
an  amount  of  silver  of  from  60  to  70  per  cent  of  that  contained  in 
the  British  and  Mexican  dollars,  the  seigniorage  to  accrue  to  the  gold 
reserve. 

Nothing  of  any  consequence  in  the  way  of  monetary  reform  devel- 
oped from  the  above  plan.  It  was  severely  criticised  by  the  governor, 
by  the  pi-esident-general  of  the  Federated  Malay  States,  and  by  many 
others  in  high  position.''  This  criticism  was  based  on  the  folloAving 
grounds : 

(1)  The  expense  involved  in  maintaining  such  a  token  coin  at  a 
2-shilling  value  and  in  exchanging  the  new  dollar  for  the  old  one. 

(2)  The  danger  of  counterfeiting,  which  in  the  Orient  would  be 
great  in  the  case  of  coins  like  the  ones  proposed,  whose  nominal 
value  was  so  far  above  their  bullion  value. 

(3)  The    difficulty    of   the    Government's   keeping   its   intentions 

«  A  copyof  the  report  of  this  committee  is  given  in  Appeiutix  XVI  of  the  Min- 
utes of  Evidenoe  and  Appendices  of  the  Straits  Settlements  Currency  Committee, 
London.  May.  1903. 

6  Ibid..  Appendix  XVII. 

c  Ibid..  Apjtendix  XXVIII,  No.  12.  See  also  Appendix  No.  r>4  of  the  Index  and 
Appendices  to  the  Evidence  Talcen  before  tlie  Committee  Ai)i)(iinted  to  Enquire 
into  the  Indian  Currency,  London,  ISSi). 


454       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

secret  until  the  final  passage  of  the  law ;  and  on  the  other  hand,  if 
the  public  were  notified  in  advance,  the  danger  of  an  inundation  of 
British  and  Mexican  dollars,  to  take  advantage,  either  legally  or 
illegally,  of  the  2-shilling  dollar  exchange  offered. 

(4)  The  difficulty  of  inducing  the  natives,  who  were  accustomed 
to  judge  the  ^alue  of  a  coin  by  its  weight,  to  take  at  a  higher  value 
a  coin  of  little  more  than  half  the  weight  they  were  accustomed  to. 

(5)  The  difliculty  of  inducing  the  native  holders  of  the  old  dollars, 
especially  those  of  the  Federated  Malay  States,  to  exchange  them  for 
a  paper  currency  with  which  they  were  not  familiar. 

As  a  result  of  these  and  other  similar  objections  nothing  came  of  the 
plan  proposed. 

The  rejection  of  this  plan  gave  a  quietus  to  the  subject  of  a  gold 
standard  for  the  Straits  Settlements,  as  far  as  any  official  action  was 
concerned,  until  the  middle  of  1902.  On  June  9,  1902,  the  Singa- 
pore Chamber  of  Commerce  again  addressed  a  letter  to  the  colonial 
government  asking  whether — 

"  in  view  of  the  recent  serious  decline  in  the  value  of  the  dollar  cur- 
rent here,  the  violent  fluctuations  in  the  price  of  silver  and  the  ex- 
treme uncertainty  as  to  the  future  of  this  metal,  all  of  which  are  not 
only  causing  great  inconvenience  to  the  trade  of  the  colony  but  con- 
stitute grave  obstacles  to  the  development  of  its  natural  resources  by 
stopping  the  flow  of  capital  from  other  parts  of  the  world," 
the  Government  were  prepared  to  investigate  into  "  the  feasibility 
and  expediency  of  securing  fixity  of  exchange."  '^  This  letter,  to- 
gether with  certain  subsequent  communications  upon  the  subject, 
Avas  forwarded  to  the  colonial  secretary  in  July. 

The  result  of  these  communications  was  that  a  committee  com- 
posed of  Sir  David  Barbour,  Mr.  W.  Adamson,  Mr.  G.  W.  Johnson, 
and  Mr.  W.  Blaine,  were  appointed  by  the  secretary  of  state  for  the 
colonies  to  consider : '' 

"(1)  The  expediency  or  otherwise  of  introducing  a  gold  standard 
of  currency  in  the  Straits  Settlements  and  the  neighboring  Malay 
States. 

"  (2)  The  practicability  of  making  the  change  and  the  steps  which 
in  the  opinion  of  the  connnittee  should  be  taken  to  effect  this  object 
if  the  change  should  be  decided  upon." 

The  committee  began  its  hearing  in  London,  November  13,  1902, 
and  continued  taking  testimony  until  about  February  1,  1903.  Dur- 
ing that  time  a  mass  of  testimony,  both  verbal  and  written,  was  taken. 
The  committee's  sittings  having  been  in  London,  it  was  necessary  that 
the  greater  part  of  the  testimony  should  be  that  of  English  merchants 
having  trade  experience  with  the  Straits  Settlements  or  with  the 
East  generally — the  class  of  persons,  who,  it  will  be  noted,  naturally 
would  have  been  most  favorable  to  the  establishment  of  a  gold  stand- 
ard. The  masses  of  the  poi)u]ation,  represented  by  the  natives  and 
by  the  Chinese,  who  do  a  large  part  of  the  business  of  the  Straits 
Settlements  and  of  the  Federated  Malay  States,  could  not  be  heard 
directly ;  while  -through  petitions  and  resolutions  they  took,  compara- 
tively little  part  in  the  controversy — in  fact  they  Avere  for  the  most 
part  igncjrant  of  the  entire  matter.  On  the  whole  the  eA'idence  seems 
to  show  that  the  weight  of  opinion  among  the  more  intelligent  of 

o  Report  of  the  Straits  Settlements  Currency  Committee,  p.  7. 
6  Ibid.,  p.  3. 


GOLD   STANDARD    IN    INTERNATIONAL    TRADE. 


455 


these  classes  was  on  the  side  of  maintainhig  the  status  quo.  The 
European  connnunity,  with  the  exception  of  the  bankers  and  of  a  few 
exporters,  v/cre  ahnost  a  unit  in  favor  of  a  gokl  staiuhird. 

A  detaiknl  discussion  of  the  evidence  brought  forth  in  this  tes- 
timony and  published  in  the  minutes  of  the  connnittee's  report  is  not 
necessary.  The  exhaustive  discussion  during  the  last  decade  or  more 
of  the  eii'ects  of  a  fluctuating  standard  of  value  has  made  knowledge 
of  the  evils  connected  therewith  general.  The  report  of  the  local 
committee  api)()inted  in  185);^  to  (;onsider  the  subject  of  the  Straits 
currency  declared  that  ""  all  the  ell'eets  remarked  on  in  paragraphs 
21-'2iS  of  the  report  of  Lord  IlerschelTs  committee  are  in  operation  in 
the  Straits."  'J'his  statement  was  nearly  as  true  in  lOOli  as  in  1893. 
A  few  salient  features  of  the  conditions  leading  to  the  legislation  of 
1903  may,  however,  be  briefly  referred  to. 

The  annual  fluctuations  in  the  gold  value  of  the  local  money  dur- 
ing the  period  1891  to  1901  are  shown  in  the  following  table:" 

Ratffi  for  hank  hiU>i  on  London. 

[Four  months  sight.] 


Year. 

Highest. 

Lowest. 

Average. 

1891                      - 

s.  d. 
3    6i 
3    U 
2    91 
2    3* 
2    Ve 
2    3 
2   i!i 
2 
2      1% 

^    ^^ 

2    U 

s.     d. 
3     U 
2      9^ 

2      4^ 
2        i 

1  lU 

2  1 

1       9/8 

1  m 

1     H 

s.   d. 
3      3 

1892 

2    10^ 

1893                                             - - 

2      7» 

1894                      .           - 

2      U 

1895  - 

2      l| 

1896                                                           - -- 

2      2i 

1897                                   -- - 

1      lllB 

1898                                                                                    - - 

1  iiS 

1899                                                                     - 

1  11  ii 

1900 --- -- -- 

1901                 .              --- 

2       i 

1       11  IB 

The  Straits  Settlements  were  not,  like  India,  practically  forced 
to  the  establishment  of  a  fixed  par  of  exchange  by  the  existence  of 
a  large  public  debt  payable  in  gold.  The  Straits  government  itself 
had  no  public  debt,  while  tlie  small  debt  of  the  Federated  Malay 
States  was  a  local  interstate  debt,  payable  in  the  local  silver  currency. 
Both  governments,  however,  regularly  had  large  sterling  obligations 
to  meet  in  the  purchase  of  supplies,  while  the  salaries  of  all  the  higher 
officials  of  the  Straits  government  were  on  a  sterling  basis.''  Inas- 
much as  these  charges  remained  relatively  fixed  regardless  of  the 
fluctuations  in  the  value  of  the  local  dollar,  while  the  gold  value  of  the 
revenue  received  tended  to  fall  rapidly  with  the  fall  of  exchange, 
the  government  found  itself  handicapped  in  meeting  its  obligations. 

The  relative  importance  of  the  Straits  Settlements'  trade  during 
the  period  from  1891  to  1901,  with  gold  and  silver  countries  respec- 
tively, may  be  seen  from  the  following  figures  representing  imports 
and  exports  of  merchandise  inclusive  of  intersettlement  trade  and 
exclusive  of  treasure.<^ 


a  Minutes  of  Evidence  and  Appendixes  of  the  Straits  Settlements  Currency 
Committee,  p.  14:'i. 

6  Vide  Colonial  Office  List.  1903,  pp.  .309-.31L  and  August  Iluttenbach,  The 
Silver  Standard  and  the  Straits  Currency  Question,  Sinj^apore.  190.3,  pp.'  9 
and  10.  ''  ■ 

'•  Minutes  of  Evidence  and  Aiipcndixes  of  the  Straits  Settlements  Committee, 
pp.  130  and  131. 


456       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

Trade  with  silver-standard  countries. 
[Values  expressed  in  millions.] 


Year. 

Exports. 

Imports. 

Total  ex- 
portsand 
imports. 

1891 _ 

$45,579 
48, 140 
44,993 
53,771 
55,4:i4 
57,079 
57,299 
64,747 
68,710 
76,294 
79,965 

$83,937 
93,946 
83,891 
94,068 
96,877 
96,260 
98,769 
98,615 
121,945 
135,402 
142,033 

$129,516 

1892 

142,086 
128,883 
147  839 

1893 

1894. 

18a5 

152  311 

1896 

153  ;«9 

1897.. 

156  068 

1898. 

16:3  362 

1899 

190,655 

1900..      .- 

211  696 

1901.... 

221  998 

Trade  with  f/old-standard  countries. 
[Values  expressed  in  millions.] 


Year. 

Exports. 

Imports. 

Total  ex- 
portsand 
imports. 

1891 

$68,910 
74,693 
89,538 
104,971 
105,394 
104,698 
114,878 
129,394 
1.57,145 
174,621 
176,808 

$44,895 
43,436 
68,547 
88,613 
88,468 
89,936 
99,591 
124, 3»7 
133,346 
154,994 
150,776 

$113,805 
118,129 

1892 

1893 

157,085 
193, 862 

1894 .. 

1895 

193,862 
203, 634 

1896 

1897 

214,469 
253  'XI 

1898 

1899 _ 

290, 4iM 

1900. _ 

329, 615 

1901 .      . 

327,584 

While  the  jfigures  show  a  healthy  growth  of  trade  in  general,  it  is 
noteworthy  that  the  greater  proportion  of  the  foreign  trade  at  the 
close  of  the  period  was  Avith  gold-standard  countries,  that  the  trade 
with  those  countries  was  a  rapidly  growing  one,  that  its  growth  was 
more  than  commensurate  with  that  with  the  silver-standard  countries, 
and  that  despite  the  severe  handicap  giVen  to  the  import  trade  with 
gold-standard  countries  by  a  falling  exchange,  the  reported  imports 
from  those  countries  had  been  for  some  time  larger  than  those  from 
silver-standard  countries,  while  the  growth  of  the  former  had  been 
much  the  more  rapid.  As  would  have  been  expected  on  a  falling 
exchange,  the  exports  to  silver-standard  countries  lagged  far  behind 
those  to  gold -standard  countries. 

AVliile  it  is  doubtless  true  that  most  of  the  trade  with  gold-standarcl 
countries  appears  in  the  colonies'  trade  statistics  and  that  a  consider- 
able part  of  what  Mr.  August  Huttenbach  calls  the  *'  Hinterland 
trade  "  with  silver  countries  does  not  appear  and  that  dollar  for  dol- 
lar the  trade  with  the  silver-standard  countries  is  someAvhat  mor? 
important  to  the  colony  than  that  with  the  gold-standard  countries, 
it  IS  none  the  less  true  that  the  Straits'  foreign  trade  both  actually  and 
prospectively  should  logically  have  placed  it  among  the  gold-stand- 
ard countries  long  before  1903." 

ffl  Vide  on  this  subject  August  Huttenbaeli.  JMoniorandura  on  the  Straits  Set- 
tlements Currency  Scheme,  Penaiig,  August  10,  1903,  pp.  2-3. 


GOLD  STANDARD  IN    INTERNATIONAL  TRADE.       457 

One  of  the  most  serious  disaclvantages  of  the  existing  silver  stand- 
ard, the  fonnnittee  believed,  Avas  the  discouragement  to  the  invest- 
ment of  foreign  capital  in  the  colony,  due  to  the  apparent,  and  in 
many  cases  real,  decline  in  the  sterling  value  of  capital  invested  in 
the  colony. 

These  facts,  together  with  the  element  of  uncertainty  and  specula- 
tion brought  into  business  by  a  fluctuating  exchange,  the  feeling  that 
exchange  had  fnUcn  to  the  point  beyond  which  a  further  fall  would 
cease  to  be  })r()iilable  to  the  export  trade,  and  the  movement  on  the 
part  of  neighboring  countries  toward  a  gold  basis,  forced  the  com- 
mittee to  the  conclusion  that  the  time  was  ripe  for  placing  the  Straits 
Settlements,  the  federated  Malay  States,  and  Johore  upon  a  gold 
standard. 

Three  principal  methods  of  making  the  change  to  the  gold  stand- 
ard were  considered.  The  plan  suggested  by  the  Singapore  chamber 
of  commerce  in  18i)7  was  believed  to  be  impracticable  for  the  reasons 
already  stated.  The  introduction  of  the  Indian  currency  system, 
which' was  recommended  by  five  members  of  the  local  currency  com- 
mittee in  1893,  involving,  as  it  did,  a  change  in  the  unit  of  value 
from  the  dollar  to  the  rupee,  the  adoption  of  a  currency  which  would 
be  largely  controlled  by  another  country,  and  whose  bullion  value 
was  far  below  its  face  value,  found  comparatively  few  supporters  in 
1893,  whatever  might  have  been  the  merits  of  the  plan  ten  years 
before. 

The  plan  finally  recommended  by  the  unanimous  vote  of  the  com- 
mittee may  best  be  briefly  stated  in  their  own  words:  « 

"  A  special  Straits  dollar  of  the  same  weight  and  fineness  as  the 
British  dollar  at  present  current  in  the  East  |  to  be  gradually  sub- 
stituted] for  the  Mexican  and  British  dollars,  the  latter  dollars 
*  *  *  [to  be]  demonetized  as  soon  as  the  auppiy  of  the  new  dol- 
lars is  sufficient  to  permit  of  this  being  done  with  safety.  Under  this 
plan  it  will  be  necessar}^  for  the  Straits  to  obtain  a  considerable  sup- 
pi)^  of  the  new  dollars,  and  as  soon  as  this  is  received  the  new  dollars 
should  be  made  full  legal  tender  concurrently  with  the  Mexican  and 
British  dollars,  and  steps  should  be  taken  to  put  them  into  circulation. 
The  first  supply  of  new  dollars  might  be  obtained  *  *  *  j^y  j,^. 
mitting  to  one  of  the  Indian  mints  a  portion  of  the  coin  reserve  of  the 
currency  commissioners  to  be  melted  down  and  converted  into  the 
new  Straits  dollars,  and  this  process  might  be  continued  until  prac- 
tically the  whole  of  the  coin  reserve  is  converted  into  new  dollars 

^c  ^  ^ 

"  Simultaneously  with  the  arrival  of  the  first  supply  of  the  new 
dollars  and  with  the  making  of  them  legal  tender,  the  import  of 
Mexican  and  British  dollars  should  be  temporarily  prohibited  and 
the  export  of  the  new  dollars  should  also  be  prohibited.  As  there  is 
ordinarily  a  large  import  of  Mexican  and  British  dollars  into  the 
Straits  and  subsecjuent  export  of  them,  we  think  it  likely  that  when 
their  import  is  prohibited  there  would  be  a  tendency  toward  a  consid- 
erable drain  of  these  coins  from  the  Straits  Settlements,  and  if  the 
new  dollars  are  freely  supplied,  the  change  of  currency  might  be  com- 
pleted without  any  great  delay. 

"Report  of  the  Straits  Settlements  Currency  Committee,  May,  1903,  pp.  12 
and  13. 


458  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

"  Wlien  the  currency  is  so  largely  composed  of  the  new  dollars  as 
to  justify  the  measure,  the  Mexican  and  British  dollars  should  be 
finally  demonetized,  and  the  Straits  Settlements  would  then  be  in  the 
position  in  which  India  was  when  the  change  of  standard  was  under- 
taken in  that  country,  with,  however,  the  very  important  advantage 
that  there  would  not  be  an  enormous  proportion  of  the  new  coins 
either  hoarded  or  circulating  in  foreign  countries,  which  might,  by 
being  thrown  into  circulation,  indefinitely  delay  the  establishment  of 
the  gold  standard. 

"After  the  Straits  Settlements  had  arrived  at  this  stage  the  pro- 
cedure might  be  exactly  the  same  as  it  was  in  the  case  of  India,  i.  e., 
after  sufficient  Straits  dollars  had  been  coined  to  meet  the  require- 
ments of  business  in  the  colony  and  the  adjoining  states  the  coinage 
of  dollars  would  cease  until  the  exchange  value  of  the  dollar  had 
reached  whatever  value  in  relation  to  the  sovereign  might  be  decided 
on  by  the  government  as  the  future  value  of  the  Straits  dollar. 
After  this  stage  is  reached  the  Straits  government  would  issue  the 
new  dollars  in  exchange  for  gold  and  at  the  fixed  rate. 

""  AVhen  the  gold  standard  is  established  it  would  not  be  indispen- 
sable that  any  gold  coins  should  be  made  legal  tender  in  the  colony 
and  the  states.  But  the  government  should  be  prepared  not  only  to 
give  in  exchange  for  a  sovereign  such  a  number  of  dollars  as  are 
hereafter  declared  equivalent  to  a  sovereign,  but  also  to  give  sov- 
ereigns in  exchange  for  dollars  at  the  same  rate  so  long  as  gold  is 
available  or  to  give  bills  on  the  Crown  agents  in  London  based  on 
the  fixed  rate  of  exchange." 

The  committee  exf)ressed  the  opinion  that  it  was  "  desirable  that 
the  standard  of  value  and  the  currency  of  the  Straits  Settlements  and 
the  Federated  Malay  States  should  continue  to  be  identical,  and  they 
hold  the  same  opinion  with  regard  to  Johore." 

The  above  recommendations  of  the  currency  committee  were  first 
published  in  Singaj^ore  on  May  7,  1903,  and  were  adopted  in  toto  by 
the  legislative  council  on  May  29,  and  accordingly  represent  the  law 
under  which  the  new  currency  is  established. 

On  September  25,  1903,  an  ordinance  was  passed  authorizing  the 
governor  in  council,  subject  to  the  approval  of  the  secretary  of  state, 
to  issue  an  order  prohibiting  the  importing,  circulating,  or  holding  in 
one's  possession  of  certain  coins  to  be  specified  in  the  order,  after  a 
date  fixed  therein,  under  penalty  of  heavy  fines  and  the  forfeiture  of 
the  coins  thus  illegally  used  or  held. 

As  soon  as  it  became  evident  that  the  importation  of  Mexican  and 
British  dollars  into  the  Straits  Settlements  was  likely  to  be  prohibited 
when  the  new  Straits  dollars  began  to  arrive,  sterling  exchange  rose 
in  tlie  Straits,  as  compared  with  neighboring  countries,  and  a  strong- 
tide  of  Mexican  and  British  dollars  began  to  flow  from  Hongkong, 
the  Philii)i)ines,  China,  French  Indo-China,  and  other  neighboring 
countries  toward  Singapore,  in  anticipation  of  the  future  prohibition 
of  their  importation  and  their  redemption  in  the  new  dollars.  The 
money  market  was  so  flooded  with  this  money  that  considerable  cur- 
rency exportations  were  soon  found  profitable. 

The  ncAV  dollars  Ix'gaii  to  arrive  early  in  October,  and  the  governor, 
pursuant  to  the  authority  given  him  in  the  ordinance  of  September 
25,  1903,  immediately  upon  the  arrival  of  the  first  shipment  of  the 


GOLD   STANDARD    IN    INTERNATIONAL    TRADE.  459 

now  coins,  issued  an  order  prohibiting  the  exportation  from  the  col- 
ony of  the  Straits  Settlements  dolhir  and  the  further  imj^ortation  into 
the  cok)ny  of  Mexican  or  British  doUars.  The  new  dolhirs  are  being 
ct)ined  at  the  Bombay  mint,  and  since  October  1  nearly  every  boat, 
coming  to  Singapore  from  Colombo  is  said  to  have  brought  several 
hundred  thousand  of  the  new  dollars.  The  money  received  is  being 
phiced  in  circulation  through  the  instrumentality  of  the  treasury  anel 
the  banks. 

It  is  yet  too  early  to  pass  judgment  upon  the  success  of  the  scheme 
adoi^teil,  and  prophecies  with  reference  to  currency  problems  in  the 
Orient  arc  cxi-ci'dingly  dangerous.  Moreover,  the  details  of  the 
nu'thods  to  l)e  adopted  ft)r  maintaining  the  sterling  parity  Avhen  it 
once  has  been  attained  and  for  adjusting  the  currency  supi)ly  to  the 
demands  of  trade  have  not  yet  been  made  pul)lic.  So  far  the  Straits 
ha\e  simply  begun  to  substitute  one  silver  currency  for  another,  and 
the  colony  will  continue  to  be  on  a  silver  standard  until  the  old  local 
currency  has  been  displaced  by  the  new  and  the  new  currency  has 
been  raised  to  a  fixed  sterling  equivalent  yet  to  be  decided  upon. 
This  process  anywhei'e  would  be  a  slow  one ;  in  the  Orient,  where  cus- 
tom and  prejudice  are  such  dominant  factors  in  all  matters  pertaining 
to  the  currency,  it  is  likely  to  be  especially  slow. 

The  promptness  and  ease  with  which  the  change  will  be  effected 
depend  very  largely  upon  the  future  course  of  silver  and  the  sterling 
par  of  exchange  which  the  Straits  government  finally  adopts.  It  is 
generally  believed  that  the  par  of  exchange  fixed  will  be  2  shillings. 
This  is  the  rate  that  has  been  most  persistentlv  urged,  a  rate  which 
would  not  materially  alter  the  existing  unit  of  account,  or  the  more 
recently  contracted  long-time  obligations,  a  rate  in  harmony  with  the 
units  of  neighboring  countries,  as  for  example,  the  Japanese  yen,  the 
Philippine  peso,  the  French  piastre,  the  Mexican  and  British  dollars, 
and  a  rate  easily  assimilated  to  the  currency  of  the  home  countr3^  If 
silver  should  continue  anywhere  near  its  present  price  the  silver  con- 
tent of  the  new  dollar,  moreover,  Avould,  at  a  two-shilling  rate,  be 
sufficiently  large  to  offer  little  inducement  to  counterfeiting,  and,  on 
the  other  hand,  sufficiently  below  the  nominal  value  of  the  dollar  to 
otter  little  probabilitj^  of  its  being  melted  down  for  bullion. 

If  silver  falls  so  that  it  shall  become  necessary  to  raise  considerably 
the  value  of  the  new  dollars  in  order  to  bring  them  to  the  sterling  par 
decided  upon,  the  time  required  to  ett'ect  the  change  will  be  a  long 
one,  and  the  numetary  stringency,  which  will  be  a  condition  sine  qua 
non  to  raising  their  value,  will  be  severe;  while  the  additional  burden 
placed  upon  that  part  of  the  debtor  class  who  have  long-time  obliga- 
tions contracted  at  times  when  the  monetary  unit  was  considerably 
below  the  par  of  exchange  fixed  upon,  and  payable  in  the  new  and 
higher-priced  dollar,  will  be  a  heavy  one,  except  in  so  far  as  it  may  be 
lightened  by  special  legislation  or  by  increased  incomes  (largely  tem- 
porary) arising  from  the  adoption  of  a  monetary  unit  of  account  of 
a  higher  value.  In  these  respects  a  low  price  of  silver  is  likely  to 
entail  upon  the  Straits  Settlements  a  repetition  of  the  unfortunate 
experiences  which  India  passed  through  during  the  period  from  1893 
to  1898. 

During  the  time  that  the  value  of  the  new  dollar  is  being  raised 
above  the  value  of  the  Mexican  and  British  dollars,  at  a  parity  with 


460       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

which  it  shall  have  been  permitted  for  a  considerable  time  to  circulate, 
great  care  will  be  necessary  to  prevent  the  illicit  importation  of  these 
coins,  which  would  tend  to  displace  the  new  dollars  and  prevent  the 
realization  of  the  currency  scarcity  necessary  to  raise  the  new  dollar 
to  the  sterling  par  adopted.  To  prevent  this  contingency  it  seems 
quite  probable  that  if  the  Mexican  and  British  dollars  are  materially 
cheaper  in  the  outside  market  than  the  sterling  value  fixed  upon  for 
the  new  Straits  dollar,  it  will  be  found  necessary  to  put  into  effect 
the  measures  penalizing  the  circulation  of  the  old  currency  author- 
ized in  the  ordinance  of  September  25,  1903. 

If,  on  the  other  hand,  the  price  of  silver  rises  so  that  the  market 
A^alue  of  the  old  dollars  is  practically  equal  to  the  sterling  value  given 
to  the  new  dollar,  and  if  their  value  remains  at  this  high  point  long 
enough  to  create  a  prejudice  in  favor  of  the  new  dollar  and  to  estab- 
lish in  the  business  community  the  habit  of  using  it,  a  subsequent  fall 
in  the  value  of  the  old  money  would  leave  the  new  dollar  in  possession 
of  the  field,  and  offer  little  inducement  toward  the  illicit  importation 
of  the  Mexican  or  British  dollars.  Under  this  contingency  the  penal- 
izing of  the  circulation  of  the  old  money  would  probably  be 
unnecessary. 

Manila,  P.  I.,  March  1, 190Jf. 


APPENDIX  F. 

THE  MONETARY  SITUATION. 

I.  THE  DISLOCATION  OF  THE  EXCHANGES— ITS  EFFECT  ON  GOLD 
AND    SILVER  COUNTRIES. 

Bj/  Charles  A.  Conant,  Treasurer  of  the  Morton  Trust  Company,  NchnYorJcCitj/. 

The  benefits  of  a  single  standard  adapted  to  modern  conditions 
Avere  so  keenly  felt  in  the  advanced  commercial  countries  which 
adopted  the  gold  basis  after  1873  that  the  inconveniences  which  might 
attend  the  step  w^ere  at  first  disregarded  or  obscured.  The  evils  of 
the  double  standard — the  uncertainty  which  it  introduced  into  con- 
ti'acts  and  the  disturbance  which  it  had  caused  to  the  monetary  sys- 
tem in  so  many  countries — had  proved  so  serious,  and  the  advantages 
of  the  single  standard  in  internal  trade  were  so  great  and  obvious 
that  for  a  brief  period  it  seemed  as  though  there  would  hardly  be  a 
discordant  note  in  the  general  chorus  of  satisfaction.  The  advantages 
of  a  single  standard  were  in  themselves  considerable,  apart  from  the 
question  which  metal  was  adopted."  It  soon  appeared,  however,  that 
several  evils  threatened  to  result  from  the  rupture  between  the  com- 
jiarative  steadiness  of  the  relationship  between  gold  and  silver  which 
had  existed  prior  to  the  general  adoption  of  the  gold  standard. 

AVhile  the  double  standard  had  failed  to  maintain  exact  parity  be- 
tween gold  and  silver,  it  had  tended  to  keep  the  metals  much  nearer 
together  in  value  than  was  found  to  be  possible  when  one  of  them 
ceased  to  be  widely  used  as  standard  mone3^  Silver  was  reduced  to 
the  rank  of  a  commodity  measured  in  value  by  gold,  and  subject,  in 
the  same  manner  as  any  other  commodity,  to  fluctuations  in  supply 
and  demand.  There  were  two  important  ways  in  which  this  change 
operated  to  make  unsteady  the  gold  value  of  silver.  The  first  was  i3y 
closing  certain  countries  against  its  introduction  as  legal  tender 
money,  and  thereby  directing  any  increase  of  supply  entirely  upon 
those  countries  which  remained  on  the  silver  standard.  The  second 
was  in  separating  the  value  of  existing  silver  coins,  in  gold-standard 
countries,  from  the  value  of  the  bullion  which  they  contained,  and 
therel)y  removing  from  the  market  for  silver  bullion  the  steadying 
influence  of  the  great  stock  of  silver  in  use  as  money. 

It  was  contended,  with  some  force,  by  advocates  of  the  double 
standard  that  so  long  as  this  standard  prevailed  in  France  and  other 
important  commercial  countries  the  entire  world  was,  in  a  sense, 
under  the  operation  of  the  double  standard.  As  Helm  puts  it,  some- 
what too  strongly :  * 

"  The  joint  standard  was  in  fact  up  to  18T3  the  common  standard 
of  value  throughout  the  civilized  world,  except  where  the  circulation 

a  Fixity  of  value  between  the  various  components  of  the  currency  is  so  essen- 
tial a  requisite  in  any  well-regulated  monetary  system  that  we  need  not  be  sur- 
prised to  find  speeial  importance  attached  to  it.     (Pierson,  I.,  p.  573.) 

6  The  Joint  Standard,  p.  129. 

461 


462  GOLD    STANDAKD    IN    INTERNATIONAL    TRADE. 

consisted  of  inconvertible  paper  money.  In  some  countries  the  legal- 
tender  unit  was  of  silver,  in  others  of  gold  and  silver,  and  in  others 
of  gold.  Since,  however,  the  relative  values  of  the  two  metals  were 
equalized  by  the  action  of  the  mint  laws  of  the  Latin  Union  there  was 
no  greater  variation  in  the  rates  of  exchange  between  any  two  of  the 
three  classes  of  countries  than  those  which  occurred,  or  might  have 
occurred,  between  any  two  of  the  same  class." 

Wliile  the  concluding  statement  is  subject  to  some  qualification,  it  in- 
volves an  important  principle.  Even  a  country  using  only  gold  could 
not  escape  the  leveling  influence  upon  the  ratio  of  exchange  between 
the  two  metals,  due  to  the  fact  that  in  bimetallic  countries  a  market 
existed  to  which  silver  would  be  attracted  if  its  price  fell,  while  gold 
was  released  for  use  in  the  gold  countries,  and  that  on  the  other  hand 
(as  proved  to  be  the  case  after  the  gold  discoveries  in  California  and 
Australia)  a  market  for  gold  existed  to  which  that  metal,  in  its  turn, 
would  be  attracted  if  it  fell  below  silver  in  value  at  the  legal  ratio  of 
coinage.  Inevitably,  under  the  operation  of  the  law  of  supply  and 
demand,  wide  markets  for  both  metals,  and  the  possibility  of  substi- 
tuting one  for  the  other  as  money,  tended  to  keep  the  metals  nearer 
together  than  if  such  markets  were  closed.  Hence  it  would  come  that 
if  there  should  be  a  relatively  decreasing  stock  of  gold  the  value  of 
gold  in  relation  to  other  things  Avould  not  rise  so  rapidly  if  the  bime- 
tallic system  lingered  in  important  countries  as  if  all  countries  were 
upon  a  gold  basis.  The  demand  for  money  in  the  bimetallic  coun- 
tries would  fall  upon  the  cheaper  metal,  and  thereby  diminish  the 
pressure  upon  the  dearer.  England  could  not  escape  the  operation 
of  such  an  economic  tendency  in  keeping  down  the  relative  value  of 
gold  when  it  tended  to  rise  above  silver,  and  a  silver-standard  coun- 
try, like  France,  could  not  escape  the  operation  of  the  same  tendency 
in  keeping  up  the  value  of  silver  by  the  opportunity  afforded  for  its 
free  conversion  at  its  mints  into  coin.  Hence  it  was  natural  that  the 
two  metals  should  remain  more  nearly  of  the  same  value  while  several 
powerful  countries  adhered  to  the  bimetallic  standard  than  after  they 
had  closed  their  mints  to  the  free  coinage  of  silver  and  employed  the 
metal  only  in  limited  quantities  for  their  subsidiary  coinages. 

Upon  the  market  for  silver  bullion  the  closing  of  many  mints  to 
free  coinage  produced  a  marked  effect.  It  was  not  merely  that  the 
market  for  bullion  was  narrowed,  but  that  the  old  relations  were 
severed  between  the  existing  stock  of  coin  and  the  new  bullion.  When 
almost  the  entire  volume  of  existing  silver  money  came  to  be  kept  at 
par  by  government  control,  and  the  bullion  contained  in  it  remained 
continuously  below  par,  the  silver  entering  the  market  from  time  to 
time  represented  almost  the  entire  visible  stock.  If  the  new  supply 
of  bullion  was  small,  its  price  rose  because  it  was  not  controlled  by 
the  great  reserve  fund  of  the  metal  in  coin.  If  the  new  stock  was 
large,  its  price  fell  because  it  found  no  check  in  the  opportunity  to 
offer  the  metal  for  free  coinage  at  the  mints.  One  of  the  great  merits 
of  the  metals  as  money  is  the  fact  that  the  production  of  any  one 
year  forms  but  a  small  fraction  of  the  existing  stock.  A  great 
increase  in  production  could  not  have  any  such  influence  as  a  great 
increase  in  the  production  of  a  perishable  commodity  like  wheat,  nor 
even  a  commodity  which  has  entered  into  consumption,  like  copper. 
The  great  product  of  previous  years  remains,  in  the  case  of  gold  and 
silver,  a  permanent  part  of  the  stock  on  the  market.     The  cost  of 


GOLD    STANDAKIQ    IN    INTERNATIONAL    TRADE.  463 

production,  therefore,  or  tlio  value  of  the  product  of  a  given  year, 
is  subject  to  the  j)owerful  steadyino;  force  of  the  whole  stock. 

This  reguhiting  influence  of  the  existin<2^  stock  ceased  to  operate 
■when  silver  was  no  lone:er  freely  coined.  I-Cvery  day  that  the  metal 
was  offered  in  the  London  market  it  became  the  football  of  specula- 
tion, because  the  supply  there  offered  w^as,  in  a  sense,  almost  the  entire 
visible  supply,  instead  of  a  very  small  fraction  of  it,  as  under  pre- 
vious conditions."  The  stock  of  those  countries  which  remained  on 
the  silver  standard — British  India,  Mexico,  and  China — remained 
nominally  a  i)art  of  the  connnon  stock  in  the  nuirket,  but  even  this 
influence  was  felt  feebly  in  the  minor  fluctuations  of  the  price  in  Lon- 
don, because  these  countries  were  so  largely  under  the  domain  of 
custom  rather  than  competition. 

The  effects  of  this  change  in  the  market  position  of  silver  were 
intensified  by  changes  in  methods  of  production.  After  it  became 
unj^rofitable  to  work  the  poorer  silver  mines  in  gold  countries,  because 
of  the  great  fall  in  the  gold  price  of  silver,  a  large  amount  continued 
to  be  mined  as  a  by-product  of  copper,  lead,  and  zinc.  This  supply 
of  silver,  coming  continuously  upon  the  market,  is  was  necessary  to 
sell  as  rapidly  as  it  was  produced,  since  the  large  capital  which  would 
be  required  to  hold  it,  and  the  almost  continuous  decline  in  its  gold 
price,  discouraged  anj^  project  for  withholding  it  for  more  favorable 
market  conditions.'' 

The  most  obvious  evil  resulting  from  the  fluctuations  in  the  gold 
price  of  silver  bullion  Avhich  attracted  the  attention  of  the  commercial 
world  was  '*  the  dislocation  of  the  exchanges,"  or  the  rupture  of  par 
of  exchange  between  gold  and  silver  countries.  This  means,  in  less 
technical  language,  that  it  became  no  longer  possible  to  calculate  with 
any  certainty — or  even  within  any  definite  limits,  however  wide — the 
degree  to  which  the  money  of  the  silver  countries  would  depart  from 
its  old  relative  value  to  the  money  of  the  gold  countries.  This  was 
designated  the  rupture  of  the  par  of  exchange,  because  operations 
between  foreign  countries  are  carried  on  through  the  foreign  ex- 
changes, and  where  the  standard  money  is  of  the  same  metal  the  cost 
of  conversion  of  one  currency  into  the  other  represents  only  the 
delay  and  expense  of  shipment.  The  effect  of  this  rupture  of  the  par 
of  exchange  upon  countries  thus  deprived  of  a  common  monetary 
standard  was  set  forth  by  the  British  Gold  and  Silver  Commission  as 
early  as  1888,  before  the  fluctuations  in  the  gold  jjrice  of  silver  had 
attained  anything  like  the  range  of  later  years.     They  said :  " 

"There  is  no  common  measure  of  value;  the  metal  composing  the 
standard  in  one  country  is  little  more  than  merchandise  in  the  other; 
and  many  of  the  advantages  of  money  as  a  means  of  facilitating 
trade  are  thus  curtailed.  This  inconvenience  is  reduced  to  a  mini- 
mum, or  disa])pears  altogether,  if  the  value  of  the  two  metals  is  com- 
paratively stable;  but  it  is  urged  that  if  to  the  difference  in  standard 

o  This  is  shown  by  the  fall  from  a  maximum  of  24Jd.  per  ounce  in  September, 
in02,  to  a  minimum  of  21  ll-IOd.  in  November,  1002. 

f>  "As  it  is  Ivnown  that  silver  is  Ijeing  shipped  with  great  regularity,  and  as  the 
history  of  the  last  thirty  years  shows  an  almost  continual  fail  in  the  price  of 
silver,  it  has  been  a  somewhat  safe  speculation  to  sell  '  futures  '  at  lower  prices. 
This  fact  places  the  selli'r  of  '  futures  '  iu  a  position  to  1)»>  iiiten^sted  in  the  con- 
stant fall  of  silver  and  to  woriv  for  it." — Memorandum  of  the  Mexican  Commis- 
sion on  International  Exchange.  Staiiility  of  Interuational  Exchange,  p.  191. 

c  S.  Misc.  Doc.  34,  50th  Cong.,  2d  sess.,  p.  40. 


464  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

is  added  the  uncertainty  of  variations  in  the  relative  value  of  the 
two  metals,  a  serious  impediment  to  trade  is  established." 

How  serious  is  the  influence  of  such  conditions  on  trade  was  thus 
stated  by  General  Walker  in  his-  discussion  of  the  subject  in  1896 :  " 

"  Such  fluctuations  in  the  relative  values  of  the  two  money  metals 
continually  involve  international  trade  in  embarrassment  and  dis- 
turbances of  a  most  serious  character,  and  often  reduce  it  to  mere 
gambling.  Without  some  tie  Avhich  can  hold  the  two  metals  at  least 
near  to  each  other  during  the  time  between  the  manufacture  and  sale 
of  commodities  and  the  receipt  of  the  proceeds,  the  producer  in  a 
gold  country  can  never  tell  for  how  much  silver  he  must  sell  his  goods 
in  order  to  make  himself  whole  and  perhaps  win  a  profit.  The  range 
of  possible  losses  or  possible  gains  from  this  source  is  such  as  to  be 
altogether  out  of  proportion  to  the  range  of  ordinary  chances  of 
industrial  and  commercial  enterprise." 

As  soon  as  the  disturbing  influence  of  the  rupture  of  the  par  of 
exchange  between  the  gold  countries  and  the  silver  countries  began  to 
be  felt,  discussion  began  as  to  its  ultimate  results.  The  natural  tend- 
ency of  the  new  conditions  was  to  increase  the  command  of  a  given 
amount  of  gold  over  labor  in  a  silver  country.  This  would  not  have 
been  the  case  if  wages  in  silver  countries  had  changed  automatically 
with  the  fall  in  the  value  of  silver,  so  as  to  remain  constant  in  ratio 
to  w^ages  in  gold  countries.  But  under  normal  conditions,  even  if 
such  adjustments  occur  ultimately,  neither  wages  nor  prices  conform 
at  once,  even  in  advanced  countries,  to  a  change  in  the  monetary 
standard.  Still  less  has  this  been  the  case  in  the  silver-using  coun- 
tries, wdiere  the  principles  of  competition  act  much  less  efficiently 
than  in  the  gold  countries.  This  condition  naturally  led  to  the  belief 
that  a  falling  standard  would  permit  slight  reductions  in  gold  prices 
sufficient  to  command  foreign  markets,  and  thus  afford  an  opportunity 
to  the  silver  countries  for  increasing  their  exports,  with  the  resulting 
benefits  which  usually  accompany  expansion  of  trade. 

There  were  strong  hypothetical  reasons  for  believing  that  these 
tendencies  Avould  prevail,  if  it  were  true  that  the  producer  could 
obtain  labor  at  the  old  wages  in  silver.''  If  he  continued  to  sell  at  the 
old  gold  price  he  would  find,  for  instance,  if  silver  declined  10  per 
cent  that  an  unearned  profit  of  this  amount  over  and  above  his  usual 
profit  was  left  in  his  hands.  If  he  found  that  competitors  in  gold 
countries  were  controlling  the  market,  it  was  in  his  power  to  cut  under 
their  prices  by  throwing  away  a  part  of  the  profit  due  to  the  decline 
in  silver  while  still  retaining  a  large  part  of  it.  Upon  the  belief  that 
this  would  be  the  course  generally  pursued  by  exporters  from  silver 

a  International  Bimetallism,  p.  139. 

6  How  these  conditions  have  operated  in  Mexico  is  thus  set  forth  by  a  careful 
observer:  "The  progressive  lowering  of  wages  as  exi)ressed  in  terms  of  gold 
thus  gives  a  margin  of  i)rofit  so  long  as  silver  falls  faster  than  the  wage  of 
skilled  labor  rises,  a  condition  which  has  generally  existed  for  a  number  of  years, 
because  even  in  the  factories,  where  competition  for  skilled  hands  makes  the 
labor  cost  tend  to  rise  as  the  price  of  the  manufactured  articles  go  up,  it  is 
several  years  after  a  severe  fall  in  silver  has  taken  place  before  any  per- 
ceptible effect  is  ))ro(luced  upon  wages.  The  stimulation  thus  induced  has,  how- 
ever, not  been  a  healthy  one,  even  from  the  standpoint  of  the  industries  in  ques- 
tion, and  it  has  been  most  baneful  for  the  rest  of  the  country." — Morrell  W. 
Gaines,  "Effects  of  the  silver  standard  in  Mexico,"  Yale  Review  (Nov.,  1903), 
XII,  p.  285. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       465 

countries,  and  that  they  woiihl  thereby  greatly  increase  their  market, 
was  based  the  fear  that  in  certain  lines  of  manufactures  they  would 
destroy  competitors  in  the  gold  countries,  or  at  least  impose  upon 
them  the  necessity  of  sacrificing  their  profits  or  reducing  the  wages  of 
labor.  Some  of  these  conse(iuences  appeared  to  be  suffered  by  certain 
industries  in  Great  Britain  in  their  competition  with  the  correspond- 
ing industries  in  British  India  and  other  silver-using  countries  of  the 
East. 

It  was  even  contended  in  some  quarters  that  low  gold  prices  abroad, 
caused  by  the  fall  in  silver,  tended  to  reduce  gold  ])rices  in  gold 
countries.  This  might  have  been  true  if  the  export  trade  of  gold 
countries  to  silver  countries  was  a  large  part  of  their  total  export 
trade,  upon  the  theory  of  equilibrium  in  the  value  of  products  ex- 
changed." The  real  difficulty  in  the  case  of  those  industries  which 
suffered  most  appeared  to  be  due,  however,  to  the  artificial  stimulus 
given  by  the  progressive  fall  in  costs  of  production,  which  caused  the 
creation  of  a  volume  of  products  exceeding  effective  demand,  and  by 
special  tariff'  legislation.  Thus  it  was  declared  by  a  committee  of  the 
Manchester  Chamber  of  Commerce,  in  1888,  that  the  special  duty 
levied  in  British  India  on  English  yarn  "  so  assisted  in  stimulating 
the  trade  that  more  mills  were  built  than  could  profitably  be  employed, 
as  shown  by  a  fall  of  nearly  40  per  cent,  on  the  average,  in  the  shares 
of  19  principal  mills  in  Bombay  during  the  six  months  ending  March, 
1885,  and  at  the  end  of  that  year  35  out  of  52  mills  paid  no  dividend."  '' 

After  a  generation  of  an  almost  steady  decline  in  the  gold  price  of 
silver,  however,  a  survey  of  the  influence  upon  the  sih^er  countries  of 
the  rupture  of  the  par  of  exchange  does  not  indicate  that  large  benefits 
have  been  derived  by  these  countries  from  their  monetary  policy,  or 
that  they  have  even  derived  from  it  the  benefits  which,  upon  a  priori 
reasoning,  might  have  been  expected.  The  countries  which  adhered 
longest  to  the  silver  standard  after  1873  were  British  India,  China, 
and  Mexico.  British  India,  as  we  shall  see,  changed  her  system  in 
1893,  but  changed  it  after  her  governors  had  been  convinced,  by  care- 
ful examination  of  her  economic  condition  and  trade  statistics,  that 
she  had  not  derived  essential  benefits  from  remaining  on  the  silver 
standard. 

There  are  two  propositions,  which  may  be  considered  separately,  in 
examining  the  actual  operation  of  a  declining  monetary  standard : 
First,  whether  such  a  standard  does  or  does  not  stimulate  exports; 
second,  whether,  if  such  a  stimulation  occurs,  it  is  beneficial  to  the 
exporting  country. 

Upon  the  first  question  the  statistics  fail  to  afford  evidence  of  a 
direct  and  powerful  stimulation  of  exports  under  the  silver  standard. 
Such  increase  in  exports  in  British  India,  in  China,  and  in  Mexico,  as 
was  shown  by  the  valuations  in  silver,  failed  to  materialize  in  an 
actual  increase  in  gold  values.  The  commission  which,  in  1893, 
investigated  the  subject  of  introducing  a  change  of  system  into  India, 

"  In  view  of  the  declining  tendency  of  gold  prices,  it  is  declared  by  Helm  that 
"  the  endurance  of  the  English  producer  in  the  contest  with  the  Indian  buyer 
over  the  iiuestion  of  who  is  to  bear  the  l>runt  of  the  fall  in  exchange,  has  gen- 
CTally  proved  less  effective  than  that  of  the  latter." — The  Joint  Standard, 
p.  141. 

*  Quoted  by  Helm,  p.  147. 

S.  Doc.  128,  58-3 30 


466  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

made  the  following  observations  on  this  subject  in  its  report  to  the 
British  Government :" 

"  Although  one  may  be  inclined,  regarding  the  matter  theoretically, 
to  accej^t  the  proposition  that  the  suggested  stimulus  would  be  the 
result  of  a  falling  exchange,  an  examination  of  the  statistics  of 
exported  produce  does  not  appear  to  afford  any  substantial  foundation 
for  the  view  that  in  practice  this  stimulus,  assuming  it  to  have 
existed,  has  had  any  prevailing  effect  on  the  course  of  trade ;  on  the 
contrary,  the  progress  of  the  export  trade  has  been  less  with  a  rapidly 
falling  than  with  a  steady  exchange." 

In  the  case  of  China,  the  average  annual  value  of  the  exports  rose 
from  £19,242,153  in  gold,  upon  the  average  of  the  ten  years  ending 
with  1891,  to  £23,376,360,  upon  the  average  of  the  ten  years  ending 
with  1901.  Measured  in  gold,  therefore,  this  increase  was  only  21  per 
cent  in  ten  years,  or  an  average  of  a  little  more  than  2  per  cent  a  year. 
Such  increase  of  exports  as  occurred,  moreover,  was  largely  to  sur- 
rounding silver  countries,  like  Japan  (under  the  silver  standard  until 
1897),  Korea,  the  Straits,  the  Philippines,  and  Hongkong.  The 
result,  in  the  opinion  of  expert  observers,  was  that  it  could  not  be 
claimed  "  that  the  decline  in  the  gold  value  of  silver  has  done  any- 
thing to  stimulate  the  growth  of  China's  exports  to  gold-using  coun- 
tries, while,  on  the  other  hand,  it  has  not  checked  an  expansion  of 
imports  from  these  gold  countries."  '' 

In  the  case  of  Mexico,  also,  the  increase  in  the  exports,  when  meas- 
ured in  gold,  was  small  for  a  country  which  has  developed  her 
natural  resources  to  such  an  extent  as  has  this  Kepublic  in  recent 
vears.  The  gold  value  of  the  exports  from  Mexico  increased  only 
from  $63,328,157,  in  1892,  to  $74,106,200,  in  1902,  representing  an 
advance  in  ten  years  of  18.38  ])er  cent,  or  less  than  2  per  cent  a  year. 
These  figures  of  the  increase  in  expoi't  trade,  measured  in  the  gold 
value  of  silver,  it  may  be  contended  do  not  represent  the  real  increase 
in  the  quantity  of  goods  exported.  This  is  the  fact,  but  it  involves  the 
additional  fact — of  cardinal  importance  in  this  discussion — that  the 
silver  countries  have  been  progressively  giving  up  under  the  silver 
standard  a  larger  and  larger  quantity  of  the  products  of  their  labor 
in  exchange  for  the  ])roducts  of  the  gold  countries.  It  is  this  fact 
which  has  impaired  the  benefits  of  any  increase  of  trade  which  they 
might  have  derived  from  falling  exchange,  and  would  tend,  if  con- 
tinued indefinitely,  to  leave  them  poorer  in  the  end  than  if  their  trade 
had  not  expanded.  In  the  case  of  Mexico,  careful  comparison  of  the 
quantities  and  gold  values  of  some  of  the  principal  articles  exported 
showed  that  six  selected  articles  exported  from  Mexico  in  1902,  at  a 
reported  value  of  $10,781,090  in  gold,  would  have  been  worth 
$16,951,328  in  gold  if  the  silver  money  in  which  the  value  was  ex- 
pressed had  retained  in  1902  the  same  value  as  in  1892.*' 

If  this  fall  in  the  gold  prices  of  exports  were  found,  on  examination, 
to  apply  in  a  corresponding  degree  to  the  exports  of  gold  countries,  it 

o  Report  of  the  Indian  Currency  Committee,  par.  27.  This  view  was  reaffirmed 
by  tlie  committee  of  1898. — "  St;il)ility  of  International  Exchange,"  p.  306. 

i*  Views  of  officers  of  the  China  Association,  May,  190o. — Stal)ility  of  Interna- 
tional ExclianKc,  ]).  2."i!). 

'•  Tlie  iMllucncc  of  Falling  Exchange  \ipon  the  Return  Received  for  National 
Products,  arguments  submitted  to  the  Monetary  (%»nnnission  of  the  Republic  of 
Mexico,  A))ril  18,  lOOo.— Sftability  of  International  Exchange,  pp.  431-439. 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE.  467 

would  not  affoct  the  real  return  received  in  commodities  by  the  export- 
ing country.  This,  however,  has  not  been  the  case.  Upon  this  point 
an  instructive  coniparision  was  made  by  a  financial  publication  of  the 
export  prices  of  certain  products  of  the  United  States  and  the  import 
prices  of  certain  leadin<>:  tropical  [)ro(lucts.  These  statements  showed 
that  the  export  price  of  products  of  the  United  States  tended  to  rise, 
or  at  any  rate  not  to  fall,  while  the  import  ])rices  of  the  articles 
received  from  tro[)ical  countries  tended  steadily  to  fall.  The  results 
of  the  comparison  were  thus  summed  uj):  " 

''  The  exports  of  cotton,  wheat,  and  corn  for  the  fiscal  year  1902, 
which  Avere  actually  valued  at  $409,275,000,  would  have  brought  at  the 
prices  of  1899  only  $ai9,'i;}i',000,  or  $90,000,000  less  than  was  actually 
received.  On  the  other  hand,  the  average  import  price  of  coffee 
dropped  from  14.04  cents  for  the  five  years  ending  with  1897  to  6.89 
cents  for  the  five  years  ending  with  1902.  The  corresponding  decline 
in  sugar  was  from  2.47  cents  to  2.20  cents,  and  of  tea  from  14.10  cents 
to  12.79  cents.  The  imports  of  these  three  articles  into  the  United 
States  for  1902  were  actually  entered  at  the  gold  value  of  $134,861,500, 
while  at  the  prices  of  1897  the  same  quantities  would  have  been 
entered  at  $191,078,()00.  The  TTnited  States,  therefore,  obtained  these 
three  important  tropical  products  at  $56,000,000  less  than  it  would 
have  obtained  them  at  the  prices  of  five  years  ago,  while  at  the  same 
time  obtaining  a  considerably  enhanced  price  for  its  own  products." 

If  these  figures  could  be  treated  as  representative,  it  would  appear 
that  over  a  very  short  space  of  time  there  was  a  gain  to  the  United 
States,  a  gold  country,  in  its  trade  with  tropical  countries,  of  about 
$146,000,000  in  a  total  trade  of  $500,000,000.  Undoubtedly  other 
influences  than  the  depressing  effects  of  the  silver  standard  operated 
upon  relative  prices  in  gold  and  silver  countries,  but  the  conclusions 
of  a  committee,  which  carefully  investigated  this  subject,  seem  to  be 
reasonably  justified,  '•  That  the  ability  to  reduce  gold  prices  afforded 
by  a  depreciating  standard,  whether  of  silver  or  paper,  tended  every- 
where to  impoverish  the  economic  forces  of  the  countries  having  such 
a  standard  in  their  relations  with  the  countries  having  a  more  stable 
standard." '' 

These  conclusions  have  been  the  result  of  very  recent  investigations, 
and  their  influence  was  only  vaguely  recognized,  if  at  all,  down  to  a 
recent  date.  They  illustrate  the  necessity  that,  for  the  benefit  of  the 
silver  countries  as  well  as  the  gold  countries,  steps  should  be  taken  to 
restore  the  par  of  exchange  which  was  ruptured  when  the  advanced 
countries  universally  adopted  the  gold  standard.  In  the  restrictions 
imposed  l)y  the  risks  of  fluctuation  upon  the  investment  of  capital  in 
the  silver  countries  is  probably  found  the  explanation  of  the  failure 
of  their  foreign  commerce  to  respond  as  much  as  expected  to  the  stim- 
ulating influence  of  falling  exchange.  They  could  not  find  the  means 
for  developing  their  export  trade  while  their  monetary  system  kept 
foreign  capital  aloof.  This  was  conspicuously  the  case  in  British 
India  and  Mexico  during  the  closing  decade  of  the  nineteenth  century, 
in  spite  of  the  rajjidity  with  which  surplus  capital  was  accumulating 
in  the  gold-standard  countries.  The  uncertainties  of  exchange  made 
it  unprofitaljle,  if  not  absolutely  hazardous,  for  the  owner  of  capital 

a  Wall  Street  Journal,  February  16,  1903. 

6  Stability  of  lateniatlonal  Exchange,  p.  4.39. 


468       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

in  a  gold  country  to  invest  it  in  a  silver  country.'^  How  this  condition 
restricts  the  trade  of  the  gold  countries  has  been  thus  set  forth  :  ^ 

"  The  rich  countries  surrender  their  products  to  the  poor  countries 
and  accept  promises  to  pay  instead  of  exacting  full  payment  from 
the  poor  countries  in  their  products.  These  transactions  are  carried 
on  in  a  manner  convenient  to  all  through  the  medium  of  the  negotia- 
ble securities  of  joint  stock  companies.  The  exporter  in  the  rich  coun- 
try who  desires  ready  money  for  his  goods  gets  it  from  the  domestic 
or  foreign  joint  stock  company  operating  in  the  poor  country.  The 
latter  company  sells  its  shares  and  bonds  in  the  exporting  country 
and  applies  the  proceeds  in  money  to  payment  for  what  it  buys  in 
machinery,  raw  materials,  and  the  means  for  maintaining  laborers. 
Thus,  in  effect,  the  rich  country  lends  its  capital,  in  the  form  of  prod- 
ucts, to  the  poor  country,  exacting  only  an  annual  interest,  and  not 
the  principal,  in  return.  The  great  resources  of  the  manufacturing 
capitalistic  nations  are  thus  put  at  the  command  of  the  undeveloped 
countries  where  they  are  capable  of  yielding  the  largest  returns  and 
(he  greatest  sum  of  benefits  to  all  concerned  in  the  transaction." 

Already  this  evil  of  the  dislocated  exchanges,  in  its  influence  on 
investments,  was  a  subject  of  discussion  in  the  report  of  the  British 
gold  and  silver  commission  in  1888,  when  silver  had  fallen  in  gold 
value  from  an  average  of  59  yV  pence  in  1873,  to  42|  pence  in  1888. 
The  evil  became  much  more  acute  in  later  years,  especially  after  the 
drop  from  the  average  quotation  of  27yV  pence  in  1901,  to  ^'it^  pence 
in  1902.  Under  the  conditions  which  then  prevailed  it  was  pointed 
out  by  the  Commission  on  International  Exchange  that  even  short- 
lerm  loans  could  not  be  made  safely  in  the  silver  countries  by  capital- 
ists in  the  gold  countries.  '^ 

The  growth  of  these  evils  in  the  trade  between  gold-standard  and 
silver-standard  countries  began  to  attract  attention  soon  after  the 
general  adoption  of  the  gold  standard  in  Europe  and  the  United 
States.  That  they  called  loudly  for  a  remedy  was  denied  in  few 
quarters.  As  to  the  nature  of  the  remedy  and  the  degree  of  sacrifice 
which  might  properly  be  made  by  the  gold-standard  countries  in 
order  to  restore  stability  of  exchange  with  the  silver  countries,  there 

« It  was  declared  by  Probyn  in  1888,  before  the  monetary  reform  in  British 
India:  "There  is  nrgent  need  for  tlie  investment  of  fresh  capital  in  India. 
Ttaihvays  are  wanted  for  its  development.  Its  manufacturing  power  is  capable 
of  almost  indefinite  expansion.  Its  mineral  resources  are  believed  to  be  vast. 
Its  internal  trade  is  open  to  immense  extension.  One  witness  examined  before 
tlie  (Jold  and  Silver  Commission  thinks  'that  from  £15,000,000  to  £20,000,000 
might  be  earned  as  an  annual  dividend  on  money  in  England  for  investments 
in  silver-using  countries  if  the  money  could  be  i»roteeted  from  the  effects  of  this 
uncertainty.'  " — Indian  Coinage  and  Currency,  p.  3. 

i>  Arguments  sulnuitted  by  the  American  Commission  on  International 
Exchange,  Stability  of  International  Exchange,  p.  101.  The  statistical  and 
political  asi)ects  of  tliis  sul)ject  are  more  fully  discussed  by  the  present  writer 
in  The  United  States  in  the  Orient;  the  Nature  of  the  Economic  Problem, 
Houghton,  Mifflin  &  Com])any,  1901. 

'Several  hundred  million  dollars  of  American  and  European  capital  was 
awaiting  investment  in  Mexico  as  soon  as  that  country  gets  on  a  gold  basis. 
Mexican  bankers  could  borrow  money  in  Paris.  Berlin,  or  Brussels  in  large 
amounts,  and  make  7,  8,  or  10  i)er  cent  on  the  investment,  but  they  dare  not  do 
it  because  if  it  was  loaned  on  short  time  and  they  were  called  on  to  repay  it  the 
fluctuations,  in  silver  might  more  than  wipe  out  all  their  profit." — Stability  of 
International  Exchange,  p.  100. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       469 

were  wide  diflforonces  of  opinion.  For  nicany  years  there  was  a  per- 
sistent— in  some  respects  well  reasoned  and  eminently  respectable — 
effort  on  the  part  of  economists  and  statesmen  to  brine;  about  the  cor- 
rection of  the  evil  by  a  return  to  the  policy  of  the  double  standard, 
under  such  a  binding  arrangement  among  commercial  nations  as 
would  tend  to  insure  its  successful  operation.  These  efforts  com- 
l)letely  failed,  because  they  were  contrary  to  the  logic  of  events  and 
were  confronted  by  j^ractical  difficulties  Avhich  ]:)roved  insurmountable. 

The  project  of  international  bimetallism  approached  the  subject  of 
regulating  the  value  of  silver  from  the  side  of  demand.  It  did  not 
undertake  to  deal  Avith  the  matter  on  the  side  of  supply.  By  creating 
an  unlimited  demand  for  silver  at  a  fixed  ratio  to  gold,  by  opening 
the  mints  to  free  coinage  on  private  account,  it  was  sought  to  maintain 
a  fixity  of  value  between  gold  and  silver  bullion.  The  experiment 
failed,  so  far  as  it  was  tested  in  the  countries  of  the  Latin  Union,  in 
British  India,  and  in  the  United  States,  because  the  supply  of  silver 
was  in  excess  of  the  demand  at  the  legal  ratio.  The  demand  which 
was  created,  while  it  undoubtedly  enhanced  in  some  degree  the  value 
of  silver  by  widening  the  market  for  it,  was  too  artificial  to  absorb 
the  product  at  its  old  gold  value  in  the  face  of  a  growing  preference 
for  gold.  This  was  plainly  indicated  by  the  accumulation  of  silver 
5-franc  pieces  in  the  Bank  of  France,  when  the  oj^tion  was  open  to 
any  frenchman  to  obtain  them  in  exchange  for  gold,  if  he  preferred 
them. 

The  problem  was  approached  from  another  side — the  side  of  regu- 
lating the  supply —  when  the  proposals  of  the  Mexican  Government 
were  made  to  the  United  States,  in  1003,  for  securing  fixity  of 
exchange  between  the  moneys  of  the  gold  standard  and  of  the  silver 
standard  countries.  It  was  no  longer  a  proposition  to  secure  fixity 
of  value  between  gold  and  silver  bullion,  but  between  gold  and  silver 
coins.  Therein  lay  a  marked  distinction.  It  is  easily  within  the 
scope  of  government  authority  to  regulate  the  quantity  of  silver  coin 
by  providing  a  supply  up  to  the  limit  of  demand.  This  regulation 
of  supply  was  the  one  factor  lacking  to  success  under  the  project  of 
bimetallism.  If  the  governments  of  the  world  which  desired  to  use 
silver  should  keep  the  amount  of  silver  money  in  use  just  equal  to  the 
need  for  it,  and  should  take  steps  to  keep  this  silver  at  par  with  gold, 
either  by  direct  redemption  or  by  the  sale  of  foreign  bills  of  exchange, 
the  problem  would  be  solved  of  keeping  at  par  coins  of  both  metals. 
The  gold  price  of  silver  bullion  would  then  be  subject  to  the  play  of 
supply  and  demand  in  the  market,  but  the  fluctuations  in  bullion 
would  not  affect  the  value  of  the  coins.  That  it  was  easily  possible 
to  maintain  silver  coins  at  par  in  gold  without  reference  to  the  gold 
value  of  their  contents  in  bullion,  has  been  demonstrated  by  the  con- 
tinuous circulation  of  such  coins  in  the  countries  of  the  Latin  Union, 
m  the  United  States,  in  Java,  and  in  British  India,  since  their  value 
as  bullion  has  fallen  50  per  cent  below  their  face  value. 

This  policy  of  giving  a  fixed  exchange  value  to  silver  coins  by  gov- 
ernment control  of  the  output  would  not  be  without  influence,  more- 
over, upon  the  market  value  of  silver  bullion.  It  would  permit 
countries  whose  scale  of  transactions  was  adapted  to  silver  money  to 
employ  such  money  in  large  amounts  without  being  subject  to  the 
inconveniences  of  fluctuations  in  its  gold  value,  just  as  in  the  advanced 


470  GOLD    STANDAED    IN    INTERNATIONAL    TRADE. 

commercial  countries  the  subsidiary  coins  were  easily  maintained  at 
gold  par  and  the  public  were  thus  guarded  against  the  inconvenience 
of  having  them  fluctuate  in  relation  to  the  standard  coin."*  An  exten- 
sion of  the  same  principle  to  the  currency  most  used  would  permit  a 
larger  employment  of  silver  than  would  otherwise  be  possible,  with 
equal  convenience,  and  would  thereby  contribute  to  widen  its  market 
and  maintain  its  price.'' 

The  adoption  of  what  was  called  a  gold-exchange  system,  of  tliis 
character,  escaped  another  fundamental  difliculty  of  the  proposed 
bimetallic  arrangement.  This  difficulty  was  to  secure  a  general 
agreement  among  commercial  nations.  No  such  agreement  was  re- 
quired to  permit  any  nation  to  issue  a  limited  amount  of  silver  coins 
and  to  keep  them  at  par  with  its  gold  standard.  There  were  advan- 
tages in  cooperation,  especially  in  regard  to  the  ratio  of  weight  to  be 
adopted  between  the  gold  and  silver  coins,  but  the  difficulties  were 
not  insurmountable  in  the  way  of  independent  action  by  each  gov- 
ernment. The  system  of  a  fixed  excliange  between  gold  and  silver 
coins  avoids,  therefore,  two  of  the  cardinal  difficulties  in  the  project 
of  international  bimetallism.  The  system  of  a  fixed  exchange  attacks 
the  problem  of  the  value  of  silver  by  adjusting  the  quantity  of  coins 
to  the  demand  for  them,  instead  of  endeavoring  to  create  an  artificial 
demand  for  an  indefinite  supply,  and  it  permits  each  nation  to  act 
for  itself  without  the  cooperation  which  has  been  found  in  practice, 
after  repeated  efforts,  impossible  in  the  project  of  international 
bimetallism. 

2.  THE  END  OF  THE  MEXICAN  DOLLAR. 

By  A.  Piatt  Andrew,  assistant  professor  of  economics,  Harvard  University. 
[From  the  Quarterly  Journal  of  Economics,  May,  1904.] 

We  of  to-day  are  Avitnessing  the  rapid  extinction  of  a  coin  which 
for  a  very  considerable  period  was  more  widely  used  than  any  otlier 
known  to  history.  Within  fifty  years  the  silver  peso  issued  from  the 
Mexican  mints  was  current  throughout  the  two  American  continents, 
circulated  in  the  West  Indies  and  in  most  of  the  islands  of  the  Pa- 
cific, and  Avas  the  familiar  means  of  payment  among  all  of  the  Asiatic 
markets  fi'om  Vladivostok  to  Singapore.  Its  predecessor,  issued 
when  Mexico  was  still  a  Spanish  colony,  had  enjoyed  throughout  the 
eighteenth  century,  and  much  of  the  seA^enteenth,  a  similarly  Avide 
currency. 

From  the  Mexican  mints,  the  first  of  Avhicli  Avas  established  in 
1535,  emanated  the  pesos,  or  "  pieces  of  eight,"  which,  Avith  their 
divisional  pieces,  Avere  almost  the  only  coins  in  use  among  the  Eng- 
lish colonists  of  North  America.     From  the  same  venerable  source 

o  As  Professor  Laughlin  says :  "  The  circulating  medium  of  India  will  and 
must  roinain  silver,  and  tlio  demands  of  the  people  for  silver  will  remain 
unchanged. "^ — History  of  Bimetallism  in  the  United  States,  p.  203. 

6  The  instructions  given  hy  the  (Jovernment  of  Mexico  in  1903  to  its  Commis- 
sion on  International  Exchange  declared,  "  The  fundamental  ohject  of  the  com- 
mission must  be  to  secure  the  stability  of  the  rate  of  exchange  betwen  silver- 
standard  countries  and  gold-standard  countries,  without  jireventing  thereby  the 
liations  wihch  now  use  silver  coin  from  continuing  to  coin  it  or  from  consuming 
it  in  the  same  or  larger  (luanlities,  i)rovi(le(l  that  its  value  with  relation  to 
gold  becomes  fixed." — Stabiiity  of  International  Exchange,  p.  105. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       471 

naturally  came  tho  coins  used  in  Florida,  Cuba,  Santo  Domingo, 
Porto  Kico,  and  the  other  Spanish  Antilles.  Even  before  1(')0()  it  is 
said  that  they  circulated  in  the  Philippine  Islands,  and  had  become 
familiar  at  such  C^hinese  ports  as  Canton,  Ninjji-po,  and  Amoy." 
During  three  centuries  these  coins,  under  one  guise  or  another,  have 
been  pouring  out  of  the  INIexican  mints  and  distributing  themselves 
over  the  two  hemispheres.  They  have  played  a  long  and  important 
part  in  the  developing  relations  between  East  and  West,  and  at  one 
time  or  another  they  have  been  employed  by  men  of  nearly  every 
color  and  race.  To-day,  however,  they  seem  destined  to  disappear 
completely  from  international  commerce.'' 

The  coins  of  but  few  othei-  countries  have  ever  attained  any  ex- 
tended intei'uational  currency,  and  the  coins  of  Austria  alone  are  at 
all  comparable  in  this  respect  to  those  of  Mexico.  The  Maria  The- 
resa thalers,  instituted  in  1751  and  reissued  continually  since  then 
with  the  eighteenth-century  designs  and  dates,  have  been  commonly 
current  in  Egypt,  Abyssinia,  and  the  Soudan,  and  are  known  in  the 
East  Indies  and  the  extreme  Orient.  They  have  made  "  the  male 
2:)rofile  and  the  elegant  blazonry  of  the  great  Empress  more  familiar 
to  the  black  races  and  to  the  yellow  races  than  to  the  white.'' ''  but 
even  these  dollars  of  Austria  have  not  conquei-ed  many  markets  when 
compared  in  range  Avith  the  coins  of  Mexico. 

The  persistence  and  universality  of  the  Spanish  dollar  as  a  coin  of 
commerce  is  not  difficult  to  explain.  Until  the  opening  of  silver 
mines  in  our  own  West  some  forty  years  ago,  nearly  all  of  the  silver 
used  in  the  civilized  world  had  come  from  Mexico  and  Spanish 
America.  More  than  four-fifths  of  the  silver  estimated  to  have  been 
produced  between  1493  and  1850  had  been  taken  from  the  mines  of 
these  regions.^'  It  is  not  strange,  therefore,  that  the  Spanish  colonies 
of  America,  with  their  unexampled  resources  of  money  material  and 
their  well-equipped  mints,  came  to  supply  so  many  countries  with 
means  of  exchange.  That  this  condition  should  have  come  to  be 
three  hundred  years  ago  is  the  more  understandable  if  one  recalls 
the  wide  trade  relations  of  Spain  at  that  time  and  the  fact  that  the 
Spanish  monarchs  of  the  sixteenth  century  were  masters  of  both  of 
the  Indies  and  controlled  the  most  extensive  emjsire  that  the  world 
had  ever  known.  Nor  is  it  strange  that  these  coins,  once  established, 
have  held  their  own,  Avhen  one  remembers  that  their  standard  of 
weight  and  fineness  has  suffered  comparatively  few  alterations  since 
their  institution.  For  a  long  period,  when  the  neighboring  gos^ern- 
ments  were  outdoing  each  other  in  the  way  of  debasement,  the  Span- 

1  Robert  Clialmers,  A  History  of  Currency  in  the  British  Colonies,  London, 

isij.'i,  1).  .371.    cf.  PI).  .';ni-.3n4. 

fi  Upon  the  General  subject  see  J.  D.  Casastis,  El  peso  Mexicano  y  sus  rivales 
en  los  mercados  del  extreiuo  oriente,  Mexico,  1903. 

c  L'ocononiiste  frant.-ais,  September  21,  1895,  p.  37.").  See  also  the  Geschichte 
des  Maria-Theresien-Thalers,  l)y  Karl  Pecz  and  Josef  Raudnitz  (Vienna,  1898). 
These  writers  estimate  the  coinaj^e  of  the  Maria  Theresa  dollays  l)et\veen  1751 
and  1897  at  13.3,20().U95.  In  the  years  1898-1903  13,002,700  such  dollars  were 
issued  from  the  centi'al  mint  in  Vienna. 

<iThe  total  production  of  silver  from  1493  to  1850  is  estimated  by  Soetbeer  as 
149,820,000  kilograms,  of  which  Mexico  is  credited  with  03,057,000,  Bolivia  with 
35,(HM.0(M),  and  Peni  with  29.432,(M)0.  Ad.  Soetbeer,  Edelmetall-Produktion  und 
Wertliverhiiltniss  zwlschen  (iold  und  Silber.  (iotha,  1879.  Eurther  estimates 
based  upon  Soetbeer's  Edelmetall-rroduktion  (1879)  and  his  Materialien  (1880) 
are  given  in  Table  No.  1. 


472       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

ish  coins  remained  intact,  and  their  exceptional  goodness  caused 
them  to  be  the  more  eagerly  sought  abroad  and  to  pass  in  a  steady 
flow  across  and  beyond  the  Spanish  boundaries.  Until  the  begin- 
ning of  the  eighteenth  century  the  ''  pieces  of  eight "  underwent  no 
serious  debasement,  with  the  exception  of  certain  local  issues,  such  as 
the  Peruvian  coins,  which  suffered  "  scandalous  falsification  "  about 
the  year  1650,  and  w^ere  accordino^ly  denied  currency  not  only  in  the 
British  colonies,  but  in  Spain  itself. 

During  the  eighteenth  century  their  content  was  only  twice  slightly 
tampered  with.  In  1728  they  were  reduced  in  millesimal  fineness 
from  930"  to  910'',  and  at  the  same  time  were  lowered  in  weight  by 
about  1^  per  cent;  but  this  was  ostensibly  to  pay  for  the  increased 
cost  of  making  the  more  elaborate  coins  then  struck.  Again,  in  1772, 
when  a  great  recoinage  was  accomplished,  their  fineness  was  reduced 
to  902",  without  alteration  in  weight."  The  standard  both  of  weight 
and  fineness  adopted  in  1772  has  been  adhered  to  ever  since  and 
remains  at  the  present  time  that  of  the  dollar  of  the  Mexican  Repub- 
lic, which  is  by  far  the  most  important  surviving  representative  of 
the  old  Spanish  "  peso."  In  all,  between  1497  and  our  own  time,  ac- 
cording to  Professor  Sumner,  the  dollar  as  a  world  coin  was  reduced 
by  only  5.9  per  cent.'' 

Since  the  end  of  the  seventeenth  century  the  output  of  the  Mexican 
mines  has  continuously  exceeded  the  combined  product  of  all  the 
other  Spanish-American  States,  and  Mexico  has  held  the  primacy 
among  all  the  silver-producing  countries  of  the  world,  her  position 
in  this  regard  having  been  contested  by  the  United  States  only  within 
the  last  thirty  years.  Considerabl}^  more  than  a  third  of  all  the 
silver  extracted  from  the  earth  since  the  discovery  of  America  has 
come  from  her  mountain  slopes  alone,''  and  throughout  this  long 
jDeriod  silver  has  formed  her  i:)rincipal  and,  for  most  of  the  time,  vir- 
tually her  only  article  of  export. 

As  recently  as  the  fiscal  year  1890-91  the  silver  exports  of  Mexico 
were  reported  as  amounting  to  more  than  81  per  cent  of  her  total 
export  trade,  although  to-day  they  represent  less  than  40  per  cent  of 
that  total.  Nor  has  this  silver  been  exported  mainly  in  the  form  of 
bullion  or  of  ])late  or  of  manufactured  ware.  Until  quite  lately  most 
of  it  has  passed  through  the  Mexican  mints  and  has  left  the  country 

«  Robert  Cbnlniers,  A  History  of  Currency  in  the  British  Colonies,  p.  392. 

While  the  legal  standard  has  remained  comparatively  stable,  the  law  has 
tolerated  an  excessive  variation  from  the  standard,  which  has  sometimes 
been  taken  advantage  of  at  certain  of  the  Mexican  mints.  Particular  issues 
have  thus  proved  of  inferior  assay,  although  within  the  provisions  of  the  law, 
and  have  been  so  discredited  in  foreign  markets  as  only  to  circulate  at  a  dis- 
count. This  was  for  a  long  time  the  case  with  the  pesos  marked  G..  which 
indicated  that  they  had  been  coined  in  Guadalajara.  See  J.  L.  Riddell.  A 
Monogra])h  of.  the  Dollar,  New  Orleans,  1845.  This  work  contains  pictures  of 
42.5  varieties  of  dollars.     See  also  Chalmers,  op.  cit.,  pp.  393-394. 

b  W.  .7.  Sumner,  "  The  Spanish  dollar  and  the  colonial  shilling,"  American 
IIistoi"ical  Review,  iii.  p.  ()17. 

c  Using  the  data  collected  by  Soetbeer  and  Lexis  and  the  directors  of  the 
mint  in  Franco  and  the  United  States,  I  estimate  that  between  1493  and  1902 
the  world's  production  of  silver  aggregated  about  284,000,000  kilograms, 
and  that  of  this  total  at  h^ist  107,000,000  kilos  came  from  Mexico.  Of  the  rest 
the  greater  i)art  came  from  Spanish  South  America — about  43,000,000  kilos 
fiom  Bolivia,  the  seat  of  I'otosi,  and  about  33.000,000  from  Peru.  The  United 
States  has  contributed  about  44,000,000,  almost  exclusively  during  the  past 
thirty  years. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       473 

in  the  form  of  coin.  In  the  appended  table "  one  can  observe  how 
recent  has  ))een  the  change  in  these  conditions.  In  1872-73  more  than 
93  per  cent  of  the  silver  exported  had  been  coined ;  in  1882-83,  almost 
81  per  cent;  in  1892-1)3,  about  49  per  cent;  but  in  1902-3  only  27  per 
cent. 

That  the  situation  is  rapidly  changing  to-day  is  evident  from  these 
figures  and  admits  of  no  doubt.  At  present  Mexico's  exports  of  silver 
bear  a  far  less  important  relation  to  her  total  trade  than  ever  before, 
and  her  export  of  coin  exhibits  even  more  rapidly  dwindling  propor- 
tions. On  many  accounts  the  day  now  seems  not  far  distant  when 
the  field  of  activity  for  the  jNIexican  dollar  will  be  limited  to  the  Mex- 
ican confines,  and  it  is  confidently  predicted  that  the  outward  flow  of 
coins  will  soon  cease  altogethei",  some  even  apprehending  that  it  will 
be  reversed,  and  that  a  back  flow  will  overwhelm  the  country  unless 
tlie  Mexican  Government  takes  measures  of  protection  against  such 
an  event.  In  the  following  pages  I  shall  sketch  the  conditions  and 
occurrences  in  different  countries  from  which  this  change  originated 
and  through  which  it  is  being  brought  to  pass. 

We  may  begin  with  the 

UNITED    STATES. 

The  North  American  colonists,  as  has  Ijeen  said,  seldom  saw  any 
other  than  the  Spanish  coins.  In  the  English  settlements  men  natu- 
rally continued  for  a  long  time  to  reckon  in  the  traditional  terms  of 
pounds,  shillings,  and  pence ;  but  they  possessed  scarcely  any  coins  of 
these  denominations,  and  when  coin  payments  occurred  they  were 
usually  made  with  "  pieces  of  eight  "  and  "  reals."  In  the  course  of 
time  the  word  "  dollar  "  gradually  superseded  the  older  terms  "  peso  " 
or  "■  piece  of  eight ''  in  referring  to  these  coins,  and  in  the  colonial 
records  of  the  eighteenth  century  one  frequently  finds  accounts  and 
due  bills  explicitly  reckoned  in  dollars.**  During  the  war  for  inde- 
pendence, when  the  Federal  Congress  issued  bills  of  credit  they  made 
them  explicitly  payable  in  the  Spanish  dollars;  and  when  a  little 
later  the  leaders  of  the  new  Republic  set  about  the  establishment  of  a 
national  currency,  Jefferson  only  expressed  the  common  opinion  in 
declaring  that  among  the  various  currency  units  the  dollar  was  "•  the 
most  familiar  of  all  to  the  minds  of  the  people."  ^  It  was  generally 
agreed,  therefore,  to  do  aAvay  altogether  with  the  old  system  of  keep- 
ing accounts  in  pounds,  shillings,  and  pence;  and  on  July  G,  1785, 
Congress  declared  the  dollar  to  be  the  ideal  monetary  unit  for  the 
TJnited  States.  The  following  year,  on  August  8,  1786,  they  decided 
that  the  American  Government  should  itself  issue  a  coin  modeled 
after  the  Spanish-milled  dollar  as  the  same  was  then  current;  and 
adequate  provision  for  its  coinage  was  at  length  voted  in  the  act  of 
April  2,  1792,  establishing  the  national  mint. 

Those  who  framed  this  act  undoubtedly  expected  that  the  new 
dollar  of  the  United  States  would  rapidly  supersede  its  prototype 

a  Table  No.  2. 

^  See,  for  example.  Acts  and  Resolves  of  the  Province  of  the  Massachusetts 
Bay,  vol.  iii,  pp.  531,  5.55,  5G2,  757. 

c  .Jefferson's  notes  on  the  establishment  of  a  money  unit  and  of  a  coinage 
for  the  United  States,  written  in  1782  or  1783,  and  printed  in  the  Report  of  the 
International  Monetary  Conference  of  1878,  pp.  437^143. 


474       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

upon  this  continent,  and  that  the  Spanish  coin  after  a  brief  interval 
would  no  longer  have  a  place  in  our  circulation ;  but  for  several  rea- 
sons this  situation  was  not  acliieved  until  sixty-five  more  years  had 
elapsed.  From  the  opening  of  the  mint  in  1793  until  1857  only 
2,675,560  silver  dollars  were  issued,  making  an  annual  average  of 
but  41,806  dollars.  As  many  of  these  passed  quickly  out  of  the  coun- 
try, the  Spanish  coins  and  later  those  of  the  Mexican  Republic  con- 
tinued to  form  an  integral  part  of  our  currency  during  all  of  this 
period. 

The  reasons  for  this  situation  are  w^ell  knowm  and  may  be  stated 
briefly.  Congress  in  1792  had  authorized  the  issue  of  aii  American 
dollar,  of  weight  and  fineness  corresponding  to  the  Spanish  dollar; 
but,  through  an  error  in  assay,  it  w^as  decided  that  the  Spanish  dol- 
lars contained  only  37l|  grains  of  pure  silver,  when  in  reality  they 
averaged  of  greater  weight."  Nevertheless  this  had  been  pres'cribed 
in  the  act  as  the  silver  content  of  the  American  coins,  and  with  such 
content  the  new  coins  were  struck.  As  the  dollars  began  to  be  issued 
it  was  soon  discovered  that  they  did  not  enter  into  circulation  and 
that  a  regular  profit  was  being  obtained  from  their  export.  Being 
fresh  and  .bright  they  were  readily  accepted  in  the  West  Indies,  and 
there  they  could  be  exchanged  for  the  old  but  heavier  Spanish  dollars, 
which  in  turn  were  imported  and  presented  to  the  mint  for  coinage. 

The  expensive  operations  of  the  mint,  it  soon  appeared,  were  result- 
ing in  no  increase  of  our  national  currenc}^,  but  w^ere  merely  a  source 
of  jirofit  to  money  dealers.  Jefferson,  upon  learning  of  this  in  1800, 
at  once  ordered  a  suspension  of  the  coinage  of  the  dollar  pieces,  and 
for  a  continuous  period  of  thirty  years  thereafter  not  another  silver 
dollar  was  issued  from  the  United  States  Mint.  Nor  was  the  situa- 
tion materially  altered  with  the  resumption  of  the  coinage  of  the 
dollar  in  1836.  The  act  of  1834  had  in  the  meantime  established  a 
new  mint  ratio  between  silver  and  gold  (16  to  1 ) ,  which  for  several 
t^ucceeding  decades  was  destined  to  undervalue  silver  and  to  exclude 
from  circulation  not  only  all  full  weighted  foreign  coins,  but  the  new 
American  silver  coins  as  well. 

So  it  happened  that  for  more  than  sixty  years  after  the  founding  of 
the  United  States  Mint,  worn  and  mutilated  foreign  coins,  mostly  of 
Spanish  origin,  continued  lo  form  the  larger  part  of  the  country's 
silver  currency.  In  fact,  these  Spanish-American  dollars,  with  their 
divisional  pieces,  were  not  only  a  familiar,  but  a  legal  means  of  pay- 
ment in  the  United  States  throughout  the  period.  They  w^ere  de- 
clared by  Congress  on  February  9,  1793,  "  a  legal  tender  for  the  pay- 
ment of  all  debts  and  demands  " — a  provision  which  was  periodically 
renewed  in  succeeding  sessions;  and  on  January  25,  1834,  after  the 
Spanish  countries  of  America  had  achieved  their  independence,  it  was 
specifically  enacted  that  the  dollars  of  JNIexico,  Colombia,  Chile,  and 
Peru  should  likewise  be  made  a  legal  tender.  Not  until  February  21, 
1857,  did  Congress  make  any  serious  effort  to  rid  the  country  of  this 
ignominious  chaos  of  inii)orted  coins.  Then,  at  last,  all  former  acts 
making  these  pieces  current  were  repealed,  and  rates  were  fixed  at 

o  Dr.  II.  V.  Lindermnn  says  that  "  the  content  of  pure  silver  should  have 
been  within  a  fraction  of  .'{77.1  grains."  Report  on  Hranch  Mints,  1872.  i).  9. 
rrof.  J.  Laurence  Laugiilin  sa.vs  tliat  "  tlie  foreign  dollars  contained  about 
?,T.'>h  to  :i74  grains  pure  silver."  Ilistoi-y  <>f  liinietallism  in  the  United  States, 
1897,  p.  53,  note. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       475 

Avhicli  the  Govornmont  Avonld  receive  them  for  a  certain  period  for 
reniintino-  into  American  coins. 

The  year  1857  thus  marks  the  first  serious  contraction  in  the  fiehl  of 
activity  of  the  Spanish-Mexican  dolhirs.  In  that  year  North  America 
Avas  formally  closed  to  the  coins  which  had  freely  circulated  there 
since  the  early  years  of  its  settlement." 

Nor  was  this  the  only  measure  which  the  American  Government 
adopted  to  restrict  the  sphere  of  the  Mexican  dollar.  A  few  years 
later  a  more  a^<;r(»ssive  step  was  taken.  The  attempt  was  made  to 
interfei-e  with  its  circulation  in  the  Far  East  by  the  introduction  there 
of  a  new  Amei-ican  ''  trade  dollar,"  in  some  respects  superior  to  that 
of  Mexico  and  intended  to  compete  with  it.  During  the  sixties  the 
TJnited  States  suddenly  developed  silver  resources  second  only  to  those 
of  Mexico;  and  Congress,  desirous  of  assisting  American  mine  owners 
to  secure  an  oriental  market  for  their  product,  in  1873  consented  to 
their  having  their  silver  stamped  at  the  ({overnment  Mint  into  coins 
adapted  for  the  Eastern  trade.''  So  great  was  the  foreign  demand 
for  Mexican  dollars  at  this  time  that  they  continually  commanded  a 
premium,  and  as  the  Mexican  (iovernment  levied  a  tax  of  8  per  cent 
upon  their  exjDort,'^  there  was  every  reason  to  believe  that  the  new 
American  coins,  which  could  be  freely  exj^orted,  and  which  would  be 
more  accurate  in  mintage  and  superior  in  bullion  value  to  the  Mexican 
dollars,''  would  meet  a  real  demand  in  the  East,  and  might  even  super- 
sede the  Mexican  coins  in  those  parts.  The  ordinary  American  dollar, 
containing  371]  grains  of  pure  silver,  had  never  been  well  received  in 
China  on  account  of  its  inferior  content.  So  the  new  coins  Avere  to 
contain  378  grains,  or  three-fourths  of  a  grain  more  than  the  standard 
of  the  INIexican  dollar.  This  would  make  them  worth,  at  the  ratio  of 
exchange  prevailing  when  the  act  was  passed,  a  little  more  than  $1.04 
in  gold,  and  would  have  the  double  advantage,  it  was  thought,  of 
rendering  them  acceptal)le  in  the  Orient,  without  danger  of  their 
invading  the  circulation  at  home. 

The  ncAv  trade  dollars,  as  had  been  expected,  found  a  ready  market 
in  the  P^ast.  At  Hongkong  and  the  Straits  Settlements,  in  French 
Indo-China,  and  at  several  Chinese  ports  they  were  made  a  legal 
tender  along  with  the  Mexican  dollars,  and  the  California  mint  soon 
found  difficulty  in  turning  them  out  fast  enough  to  meet  requirements. 
'\^'ithin  six  years  after  the  commencement  of  their  coinage  nearly  36 
millions  had  been  struck,  and  in  January,  1877,  the  leading  bankers 
in  China  reported  that  there  was  "  evidence  powerful  enough  to  con- 
vince the  most  sceptical  "  that  the  United  States  trade  dollar  has  been 
a  success,  predicting  that  "  ultimately  it  Avill  be  current  all  over 

«  The  Spanish  and  American  coins  ceased  to  have  a  legal  standing  in  Canada 
in  IS");'..     Chaiiiicrs,  i).  ISS. 

It  Adolf  Soethccr.  a  few  years  later,  proposed  that  the  German  Government 
siniiliu-ly  issue  a  trade  dollar  fur  oriental  use,  as  a  means  for  facilitating  the  dis- 
jiosal  of  its  surplus  silver.  Hulletiu  de  Statistique  et  de  Legislation  Comparee, 
Ain-il,  1ST7.  pp.  2;55-2;{8. 

c  The  export  of  silver  dollars  from  Mexico  had  been  subject  to  a  tax  ever  since 
the  con(iuest.  From  the  year  of  Independence  down  to  1857  this  tax  stood  at  34 
I)er  cent.  In  that  year  it  was  raised  to  G  i)er  cent,  and  in  1872  it  was  raised 
again  to  8  jjer  cent,  at  which  point  it  stood  until  its  abolition  November  1,  1882. 
Since  this  last  date  the  export  of  coined  silver  has  been  free. 

<*  See  appended  table,  No.  3. 


476  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

China."  "  The  American  dollar  was  thus  making  rapid  inroads  upon 
the  territory  of  the  Mexican  dollar  and  threatening  it  with  very 
serious  competition  in  the  Far  East,  when  unanticipated  conditions 
in  America  resulted  in  the  abrupt  cessation  of  its  coinage  and  its 
ultimate  w^ithdrawal  from  the  field. 

The  decline  in  the  price  of  silver  reached  such  a  point  in  1877  that 
the  silver  in  a  trade  dollar  was  worth  not  only  less  than  a  gold  dollar, 
but  also  less  than  the  depreciated  paper  dollars  which  constituted 
the  circulating  medium  of  almost  the  entire  country.  As  a  conse- 
quence large  numbers  of  trade  dollars  began  to  appear  in  circulation. 
These  trade  coins  really  had  no  legal  standing  in  the  country,  being 
neither  an  authorized  tender  for  debts  ^  nor  receivable  at  the  public 
treasury. 

In  tlie  eyes  of  the  law  they  were  only  disks  of  metal  assayed  and 
stamped  at  the  Government  mint  for  foreign  use;  but  they  bore  on 
their  face  the  words  "  trade  dollar  "  and  "  United  States  of  America," 
and  it  was  not  strange,  therefore,  that  they  were  frequently  given  and 
taken  at  home  at  their  face  value.  The  confusion  was  aggravated  in 
the  following  year,  when  Congress  ordered  the  renewed  coinage  of 
the  old  standard  silver  dollar  under  the  Bland -Allison  Act  (February 
25,  1878),  for  this  meant  that  dollar  pieces  of  even  less  intrinsic  value 
were  to  circulate  at  par  under  governmental  authority.  If  these 
smaller  silver  coins  were  to  be  everywhere  receivable  as  equivalent 
to  the  gold  dollar  it  appeared  but  logical  that  the  larger  coins  issued 
from  the  same  mint  should  not  be  worth  less. 

Apprehending  the  increasing  misuse  of  the  trade  dollar,  the  Secre- 
tary of  the  Treasury  therefore  ordered  the  discontinuance  of  its  coin- 
age on  October  15,  1877,  and  the  ban  was  lifted  upon  only  a  few  occa- 
sions after  that  date,  when  small  amounts  were  coined  expressly  for 
exportation.  The  trade  dollars  still  outstanding  in  the  country  con- 
tinued, however,  to  be  a  source  of  embarrassment,  until  finally,  in 
1887,  Congress  decided  to  get  rid  of  the  anomalous  pieces  altogether. 
An  act  was  passed  upon  March  3  of  that  year  authorizing  the  redemp- 
tion and  recoinage  into  standard  silver  dollars  of  all  trade  dollars 
presented  during  the  succeeding  six  months.  The  Government  had 
coined  in  all  35,965,92'1  of  them,  of  which  7,689,036  were  withdraAvn 
under  the  provisions  of  the  act,  a  considerable  number  having  been 
reimported  after  the  passage  of  the  act.  The  vast  majority,  how- 
ever, seemed  destined  to  remain  in  the  Orient,  unrepaired  and  unre- 
enforced  until  time  and  use  have  accomplished  their  decay  or  the 
melting  pot  has  consumed  them. 

THE  PHILIPPINES. 

The  next  and  most  recent  encroachment  which  the  American  Gov- 
ernment has  made  upon  the  domain  of  the  Mexican  dollar  dates  from 
the  Spanish-American  war,  and  culminated  in  the  Philippine  cur- 

o  Reports  made  by  the  Oriental  Bank  and  the  Hongkong  and  Shanghai  Bank- 
ing Corporation,  quoted  in  H.  R.  Linderman,  Money  and  Legal  Tender,  New 
York.  1S7S,  pp.  .^)7-.^8. 

I'Tho  act  of  F('l)ruary  12,  187.3,  which  first  authorized  the  coinage  of  the  trade 
dollar,  had  included  a  list  of  subsidiary  silver  coins  that  wei'e  to  have  a  legal- 
tender  i)o\ver  to  the  amount  of  .$">.  In  this  list  the  trade  dollar  was  inad- 
vertently included  ;  but  the  mistake  was  rectified  by  a  special  act  passed  July 
22,  18715,  which  removed  its  legal-tender  quality  altogether. 


GOLD  STANDARD  IN  INTP:RNATI0NAL  TRADE.       477 

roncy  act  of  ^laivh  2,  1903.  With  the  coming  of  the  Spaniards  in 
the  sixteenth  century  the  coins  of  Spain  began  to  circuhite  in  the 
Philippines,  and  these  coins,  and  later  their  successors  of  the  Mexican 
Republic,  have  constituted  almost  the  only  currency  in  those  islands 
since  then.  In  ISTT,  to  be  sure,  the  import  of  foreign  coins  was  pro- 
hibited in  the  Philippines,  but  as  no  dollar  pieces  or  pesos  were  ever 
issued  from  tlie  mint  in  Manila,  and  as  few  coins  were  sent  out  directly 
from  Spain  until  1S!)7,  the  Mexican  dollars,  which  still  retained  their 
])ower  of  legal  tender,  and  which  were  being  regularly  smuggled 
into  the  islands  with  the  knowledge  or  connivance  of  the  customs 
officials,  remained  until  1903  the  only  monetary  standard. 

The  advent  of  the  Americans  brought  a  very  diiferent  currency 
system,  based  upon  a  gold  standard,  into  close  contact  with  the  Mex- 
ican silver-standard  system,  and  some  readjustment  soon  became 
inevitable.  Rates  of  exchange  between  the  money  of  the  ITnited 
States  and  the  money  of  the  new  oriental  possessions  were  in  con- 
tinual movement,  both  on  account  of  oscillations  in  the  market  value 
of  silver  and  because  the  demand  for  Mexican  dollars  fluctuated  in 
the  contiguous  Chinese  markets.  In  December,  1898,  for  instance, 
the  metallic  content  of  the  Mexican  dollar  had  an  averag:e  value  of 
46.6  cents.  Then  it  began  rising,  and  by  December,  1900,  it  had  risen 
to  50.5  cents.  Then  once  again  the  process  was  reversed,  and  two 
years  later,  in  December,  1902,  it  had  sunk  to  the  unprecedented 
average  of  only  37.8  cents."  Meanwhile  the  value  of  the  Philippine 
money  was  also  affected  by  the  changing  demand  for  Mexican  dollars 
in  adjacent  countries — demands  which  often  could  not  be  readily 
supplied  because  of  the  remoteness  of  the  issuing  mint. 

In  the  autumn  of  1900,  to  cite  one  instance,  when  more  than  3 
million  in  Mexican  silver  were  exported  from  the  Philippines  to  meet 
the  demands  of  the  foreign  forces  in  China,  the  exchange  rate  for 
the  Mexican  dollar  rose  very  rapidly  above  its  metallic  value,  only 
to  fall  again  a  few  months  later  with  equal  rapidity  v/hen  the 
foreign  forces  in  China  were  reduced.  Under  such  conditions  the 
efforts  of  the  Philippine  Commission  to  maintain  the  value  of  the 
Mexican  dollar  at  50  cents  by  temporary  makeshifts,  such  as  making 
appropriations  in  that  money  whenever  it  tended  to  fall  in  value,  and 
levying  duties  upon  its  export  whenever  it  tended  to  rise,  were  predes- 
tined to  fail.^  The  Commission  repeatedly  urged  upon  Congress  the 
necessity  of  providing  a  substitute  for  the  Mexican  dollar  which 
would  continue  uniform  in  its  relation  to  the  United  States  dollar, 
and  which  would  be  so  distinctive  in  character  as  to  impede  its  export 
from  the  islands.  This  Avas  the  advice  also  of  Mr.  Charles  A.  Conant, 
the  special  commissioner  appointed  to  investigate  the  monetary  con- 
ditions there,  in  his  report  to  the  Secretary  of  AYar  dated  November 
25,  1901,"  and  eventually  a  plan  along  the  lines  of  these  recommenda- 
tions was  adopted  by  the  American  Government. 

The  matter  of  remodeling  the  Philippine  currency  was  debated  in 
several  sessions  of  Congress  before  a  bill  was  devised  upon  which  a 
majority  of  both  Houses  could  be  persuaded  to  agree.     The  Senate 

oDatos  estadisticos  preparados  por  la  secretaria  de  hacienda  y  credito  publico, 
ospecialmeute  para  el  estudio  de  la  cuestion  monetaria,  Mexico,  1903,  Estado 
Xum.  ;!<!. 

f>  See  Report  of  the  Taft  Pliiliiti)iiie  Coiumis.sion,  made  November  30,  1900. 

c  Annual  Report  of  the  Secretary  of  War,  1901,  Appendix  G. 


478       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

for  long  inclined  toward  the  conservative  policy  of  issuing  a  substi- 
tute for  the  Mexican  dollar  without  disturbing  the  existing  silver 
standard — an  arrangement  suggested  by  the  English  Bombay  dollar 
then  used  in  the  Straits  Settlements  and  at  Hongkong,  of  which  we 
shall  hear  later  on.  A  majority  of  the  House,  on  the  other  hand, 
voted  to  introduce  a  gold  standard  and  the  complete  American  system 
of  coins.  The  compromise  which  was  eventually  effected  in  the  law  of 
March  2,  1903,  provided  for  the  adoption  of  a  gold  standard,  Avhile 
leaving  silver  the  circulating  medium  of  the  country.  It  made  the 
gold  coins  of  the  United  States  a  legal  tender  for  all  debts,  but  pro- 
vided at  the  same  time  for  the  issue  of  a  new  American-Philippine 
peso  of  silver,  weighing  a  trifle  less  than  the  Mexican  dollar,  and 
intended  to  take  its  place  as  the  usual  currency  of  the  islands.  This 
peso,  which  contained  3-^  grains  more  silver  than  the  standard  Ameri- 
can dollar,  was  made  the  legal  equivalent  of  50  cents  in  American 
money  (although  at  the  time  the  act  was  passed  its  bullion  value  was 
somewhat  less  than  40  cents),  and  the  Commission  was  enjoined  to 
preserve  this  parity  by  limiting  the  coinage,  by  selling  foreign 
exchange,  by  creating  a  gold  reserve  through  the  issue  of  certificates 
of  indebtedness,  or  by  "  such  measures  as  it  may  deem  proper,"  no 
lequirement  for  redemption,  however,  being  stipulated.  The  Secre- 
tary of  the  Treasury  began  at  once  to  purchase  silver  for  the  new 
coins,  the  dies  for  which  had  already  been  prepared  in  anticipation  of 
the  passage  of  the  act.  The  act  was  passed  in  March,  but  before  the 
end  of  A]ii-il  the  first  shipments  of  pesos  had  been  made,  and  by  tlie 
end  of  1003  more  than  17  million  pesos  had  been  sent  out.  Governor 
Taft  at  once  instructed  all  disbursing  officers  to  make  no  payments  in 
local  or  Mexican  coins  after  July  1,  1903,  and  since  January  1,  lOO-t, 
the  Mexican  and  Spanish  silver  has  no  longer  been  receivable  for 
public  dues. 

The  reorganization  of  the  Philippine  currency  is  being  carried 
through  with  surprising  expedition.  Before  the  American  occupa- 
tion there  was  an  amount  of  Mexican  silver  circulating  in  the  islands 
variously  estimated  as  between  20  and  40  million  dollars,  and 
there  were  in  addition  about  six  million  especially  coined  Philippine 
dollars  of  lighter  weight,  sent  out  by  the  Spanish  Government  only 
a  few  months  before  the  war  began.  Much  of  this  coin  has  been 
shipped  out  of  the  country  in  anticij)ation  of  its  demonetization,  the 
rest  will  be  purchased  as  bullion  and  remade  into  new  Philippine 
pesos.  Meantime,  since  January,  1904,  the  further  importation  of 
silver  coius  not  upon  a  gold  basis  has  been  forbidden,  and.  beginning 
with  October  1,  1904,  a  tax  is  to  be  levied  upon  all  written  contracts 
made  j^ayable  in  Mexican  or  Spanish  coin,  or  other  money  not  based 
upon  gold.  The  substitution  of  the  new  money  for  tlie  old  is  being 
accomplished  with  some  difficulty,  because  many  of  the  Mexican  dol- 
lars weigh  a  trifle  less  than  the  Philippine  pesos,  and  are  thus  pre- 
ferred in  making  purcliases  or  in  settling  debts  to  the  heavier  coins, 
for  which  a  premium  not  infrequently  can  be  obtained."  In  the  re- 
mote parts  of  the  archipelago  the  process  of  getting  rid  of  the  old  coin 
IS  not  improbably  a  matter  of  years.     Indeed,  it  is  within  the  bounds 

1  Fourth  Annual  Report  of  the  Pliilii)pine  Commission,  dntod  Docember  23, 
1!)(«,  p.  47.  Sec  also  the  Koi)ort  of  the  Chief  of  the  Bureau  of  Insular  Affairs, 
dated  October  31,  1!>03,  pp.  0-17. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       479 

of  possibility  that  the  price  of  silver  shoiikl  rise  again  above  04.1 
cents  per  ounce,  its  nominal  value  at  the  present  coiniiif^  ratio  of  32.25 
to  1,  so  that  the  new  pesos  would  be  worth  more  as  bullion  than  as 
coin.  In  that  event  the  whole  scheme  of  monetary  transformation 
would  fall  through."  There  is  little  likelihood,  however,  of  such  a 
recovery  in  the  value  of  silver,  and  we  may  safely  consider  the 
Philippine  coinage  act  of  March  3,  1903,  as  marking  another  defini- 
tive stage  in  the  contracting  field  of  the  Mexican  dollar. 

One  other  s(c[)  in  the  same  direction,  which  is  in  part  connected 
v>'ith  the  Spanish-American  Avar,  may  be  mentioned  in  passing, 
namely,  the  change  of  currency  in  Porto  Rico.  The  Mexican  dollars 
had  furnished  the  principal  currency  for  the  island  during  a  long 
period,  but  in  1895  the  Spanish  Government  undertook  to  supplant 
them  by  making  a  special  issue  of  lighter  coins  to  take  their  place,  and 
arranged  favorable  terms  for  their  exchange.  The  new  coins  were 
made  of  the  same  Aveight  and  fineness  as  the  Spanish  pesos  and  bore 
identical  devices  and  mint  marks,  except  for  the  substitution  of  tlie 
words  '"  I*uerto  Rico  "  in  place  of  the  name  of  the  mother  country. 
One  hundred  of  these  coins  of  lighter  Aveight  Avere  given  for  ninety- 
five  of  the  Mexican,  and  about  six  million  Avere  exchanged  in  this 
Avay.  The  Mexican  dollars  Avere  thus  AvithdraAvn  from  the  island, 
but  their  successors  Avere  destined  to  endure  only  a  brief  period  of 
&er\dce.  With  the  accession  of  the  American  Government  they  in 
turn  Avere  supplanted  and  demonetized,  and  imder  the  act  of  April  12, 
1900,  the  coins  of  the  United  States  Avere  substituted  for  them,  at  the 
rate  of  60  cents  in  American  money  for  1  peso  of  Porto  Rican  coin.^ 

BRITISH  COLONIES  IN  THE  FAR  EAST." 

If  Ave  turn  noAv  to  the  British  colonies  we  are  confronted  Avith  a  long 
series  of  tentatiA^e  and  more  or  less  futile  endeavors  on  the  part  of 
the  British  Government  to  dislodge  the  Mexican  dollars  and  to  estab- 
lish in  their  stead  the  British  system  of  coins.  In  the  former  effort 
the  Government  has  only  Avithin  A^ry  recent  years  achicA^ed  a  fair 
measure  of  success;  in  the  later  effort  it  has  failed  completely.  If  Ave 
look  no  further  back  than  1825  Ave  find  the  home  Government  in  that 

a  It  was  in  anticipation  of  some  such  contingency  tliat  Mr.  Conant  advocated 
lowering  the  standard  of  tlie  new  coins  to  0.835  instead  of  O.OOO,  so  that  it  would 
not  be  profitable  to  melt  or  exitort  them  until  the  price  of  silver  rose  above  75 
cents  per  ounce.     See  his  report  to  the  Secretary  of  Wdv.  1901,  pp.  21-2.5. 

Colonel  Edwards,  Chief  of  the  Bureau  of  Insular  Affairs  in  the  War  Depart- 
ment, maintiiins  that  under  the  present  law  the  new  coinage  is  in  no  danger 
until  silver  sells  at  (J(i  or  (UU  cents.  "  I  reach  this  figure  by  counting  in  the 
expense  of  transportation,  melting,  refining,  and  casting  into  l^ars,  all  of  which 
go  to  make  up  the  total  cost  of  reducing  the  coinage  to  merchantable  shape  as 
bullion." — New  York  Evening  Post,  Septemi>er  14,  VM'.i. 

f>  See  the  Report  of  the  Military  Govei-nor  of  Porto  Rico  on  Civil  Affairs,  pp. 
171-174,  in  House  Documents,  5Gth  Congress,  2d  session,  1900-1901,  vol.  14. 

c  The  Spanish  dollars  circulated  in  England  once  for  a  brief  period.  In  1804,  • 
when  the  ordinary  British  silver  had  been  driven  out  of  circulation  by  the  notes 
issued  under  the  Restriction  Act,  the  Bank  of  England,  with  the  consent  of  the 
Government,  had  a  considerable  amoimt  of  Spanish  dollars  restamped  and  put 
in  circulation.  They  were  not  given  legal-tender  power  as  between  individuals, 
but  the  bank  was  oblige<l  to  receive  them  at  the  rate  at  which  they  were  issued. 
(Lord  Liverpool,  A  Tre.itise  on  the  Coins  of  the  Realm  (1805),  chap,  xxv.)  Illus- 
trations of  these  restamped  dollars  may  be  found  in  J.  L.  Riddell,  A  Monograph 
of  the  Silver  Dollar  (1845),  figure  No.  29. 


480  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

year  undertaking  a  systematic  plan  to  force  the  new  British  silver 
coined  under  the  act  of  1816  into  circulation  throughout  all  of  the  colo- 
nies. The  troops  were  everywhere  to  be  paid  in  British  money,  and, 
in  order  to  give  this  money  general  currency,  rates  were  established 
at  Avhich  it  was  to  be  received  in  place  of  the  Spanish  coin."  These 
orders  were  far  too  simple  and  sweeping  to  be  widely  effective,  and 
they  remained  generally  inoperative  until  the  great  discoveries  of 
gold  in  California  and  Australia  came  to  reinforce  them.  Then,  as 
the  relative  value  of  silver  rose,  the  full-weighted  silver  coins  were 
everywhere  forced  out  of  circulation  where  gold  and  silver  had 
been  current  side  by  side  at  a  legal  ratio.  The  depreciation  of  gold 
was  not  followed,  however,  in  the  British  colonies  in  every  case  by 
the  adoption  of  the  British  currency.  In  Canada,  for  example,  the 
gold  coins  of  the  United  States  virtually  became  the  standard,  and 
in  Newfoundland  a  gold  standard  of  a  quite  peculiar  $2  denomina- 
tion was  adopted.  But  it  did  have  one  primary  effect.  It  accom- 
plished the  final  exclusion  of  the  Spanish  and  Mexican  dollars  from 
the  British  colonies  in  America,  and  except  for  the  republics  of 
Spanish  America  these  coins  henceforth  were  banished  to  the  P^ar 
East. 

In  the  British  colonies  of  Hongkong  and  the  Straits  Settlements 
the  Mexican  dollar  has  continued  to  dominate  the  circulation  down  to 
the  present  time,  notwithstanding  the  efforts  of  the  British  Govern- 
ment to  displace  it.  Great  Britain  came  into  possession  of  Hong- 
kong in  1841,  and  three  years  later  British  token  silver  was  pro- 
claimed to  be  the  standard,  the  home  Government  confidently  expect- 
ing that  shillings  and  pence  within  a  brief  period  would  take  the 
place  of  dollars  and  cents  in  the  new  settlements.  This  anticipation 
Avas  formed,  however,  without  sufficient  regard  either  to  the  character 
of  the  British  coins  or  to  the  habits  of  the  people  concerned.  Silver 
had  seldom  circulated  among  the  Chinese  except  by  weight,  and  as 
the  British  silver  had  been  deliberately  underweighted  in  1816  it 
was  certain  to  be  discounted  by  the  Chinese,  and  the  proclamation  of 
1844  was  foreordained  to  remain  ineffective.  It  eventually  became 
evident,  even  to  the  authorities,  that  the  Mexican  dollars  were  not  to 
be  displaced  by  this  sort  of  legislation,  and  a  new  plan  was  devised, 
intended  to  establish  a  British  currency  in  the  Far  Eastern  colonies 
without  altering  the  denomination  of  the  coins  then  in  use.  In  1864 
it  was  decided  to  open  a  local  mint  in  Hongkong  and  to  issue  a 
British  dollar  of  size  and  weight  like  the  dollar  of  Mexico,  and  this 
was  actually  done  two  years  later. 

The  coins  issued  from  the  Hongkong  mint  for  some  reason  or  other 
contained  nearly  three  grains  less  of  pure  silver  than  the  standard 
Mexican  coins,  and  for  this  reason  and  because  of  their  unaccustomed 
devices  they  were  not  at  the  outset  well  received  by  the  Chinese.  It 
appeared  that  they  could  only  be  made  to  circulate  at  a  discount. 
So  after  two  years  of  tentative  experience  with  them  the  colonial 
authorities  became  discouraged  with  the  prospective  results,  closed 
the  mint,  and  sold  its  machinery  to  the  Government  of  Japan.  In  the 
course  of  two  years  only  a  little  more  than  two  million  of  the  British 
dollars  had  been  struck,  and  the  experiment  therefore  can  not  be  said 
to  have  been  very  persistently  pursued.  That  the  experiment  might 
have  succeeded,  if  persevered  in  for  a  longer  time,  is  indicated  by  the 

a  Chalmers,  pp.  23-32. 


(K)LD  STANDARD  IN  INTERNATIONAL  TRADE.       481 

fact  that  tlioso  identical  dollars  were  subsequently  accepted  at  par,' 
and  still  more  by  the  recent  success  of  similar  issues. 

The  trading  connnunities  of  the  Straits  Settlements  and  of  Plong- 
kong  have  several  times  since  then  urged  a  repetition  of  the  experi- 
ment ;  but  not  nntil  1895,  nearly  thirty  years  after,  could  the  Govern- 
ment be  jiersnaded  to  make  the  attempt,  the  usual  reason  given  for  not 
doing  so  being  the  difficnlty  of  furnishing  coins  at  a  price  low  enough 
to  compete  with  the  Mexican  dollar.  After  the  sununer  of  1893  there 
had  been  many  complaints  of  a  scarcity  of  Mexican  dollars,  the  rating 
for  which,  with  the  fall  in  the  price  of  silver,  had  risen  materially 
above  its  bnllion  Aalne.  At  the  same  time  the  Indian  mints  w^ere 
without  work  because  of  the  suspension  of  the  rupee  coinage.  The 
occasion  seemed  ])eculiarly  propitious  for  a  renewal  of  the  British 
dollar,  and  the  Oovernment  accordingly,  by  an  order  in  council  of 
February  2,  1895,  authorized  the  mints  of  Bombay  and  Calcutta  to 
strike  dollar  ])ieces  for  any  bankers  and  merchants  who  might  re- 
quire them.  The  new  coins,  as  regards  weight  and  fineness,  Avere  to 
be  modeled  upon  the  old  dollars  of  Hongkong  and  the  Japanese  yen. 
and  a  uniform  charge  of  1  per  cent  was  to  be  leA'ied  upon  their  issue. 
Two  of  the  largest  eastern  banks  guaranteed  the  experiment  by 
agreeing  to  take  a  minimum  coinage  of  five  million  dollars  annually; 
but  it  was  hoped  that  the  neA\'  monej^,  Avhen  once  established,  would 
command  a  wide  circulation,  not  only  in  Hongkong  and  the  Straits 
Settlements,  but  also,  on  account  of  England's  wide  trade  relations, 
in  countries  not  under  the  British  Crowui.  That  their  hopes  have 
already  been  successfullj^  realized  is  indicated  b}^  the  amount  of  dol- 
lars coined  in  the  intervening  years.^  More  than  150  millions  have 
been  issued  and  exported  to  the  P^nglish  settlements  on  the  Pacific, 
and,  being  of  superior  coinage  and  unabraded,  they  have  come  into 
circulation  in  all  of  the  great  markets  of  the  extreme  Orient.  They 
constitute  to-day,  in  fact,  the  most  serious  rival  which  the  Mexican 
dollar  has  ever  encountered  in  those  ports. 

Number. 

1805-9G 3,310,00.3 

189(i-97 6, 135,  017 

1807-OS 21,  280,  427 

lSaS-09 21,  545,  504 

ISOg-UKK) 30,743,1.59 

1900-1901 9,  404,  991 

1901-2 27,198,050 

1902-3 31,  671, 117 

Total,  eight  years 151,301,594 

Meanwhile  the  fractional  silver  coins  of  50,  20,  and  10  cent  denomi- 
tions,  issued  at  the  mints  of  London  and  Birmingham  for  the  colony 
at  Hongkong,  have  also  been  making  inroads  upon  the  territory  in  the 
neighborhood  of  Hongkong  that  hitherto  has  belonged  to  the  Mexican 
coins.  Over  23  million  dollars  in  these  coins  have  been  sent  out 
within  the  past  ten  3'ears,  and  the  Chinese  seem  actually  to  prefer 
theuL  because  of  their  newness  and  unimpeachable  purity  to  their  own 
copper  cash  or  the  other  foreign  silver. 

In  the  Straits  Settlements  a  still  further  step  has  just  been  taken 
toward  the  extinction  of  the  Mexican  dollar.     For  a  number  of  years 

a  riialmers,  op.  eit.,  p.  370. 

&  From  the  annual  reports  of  the  deputy  master  ami  comptroller  of  the  mint, 
London. 

S.  Doc.  128,  58-3 31 


482       GOLD  STANDARD  IN  INTP^RNATIONAL  TRADE. 

the  matter  of  introducing  a  gold  standard  in  the  Settlements  and  the 
Federated  Malay  States  has  been  mooted, and  in  1902  the  colonial  ofii(;e 
appointed  a  committee  to  consider  the  expediency  and  practicability 
of  such  a  change.  This  committee  reported  in  March,  190;^>,  recom- 
mending the  gradual  introduction  of  "  a  special  Straits  dollar  of  the 
same  weight  and  fineness  as  the  British  dollar  at  present  current  in  the 
East,  to  be  substituted  for  the  Mexican  and  British  dollars,  the  latter 
dollars  being  demonetized  as  soon  as  the  supply  of  new  dollars  is 
sufficient  to  permit  of  this  being  done  in  safety."  When  this  condi- 
tion has  been  attained,  the  procedure  recommended  is  exactly  the 
same  as  that  which  was  followed  in  British  India.  "  The  coinage  of 
dollars  would  cease  until  the  exchange  value  of  the  dollar  had 
reached  whatever  value  in  relation  to  the  sovereign  might  be  decided 
on  b}^  the  Government  as  the  future  value  of  the  Straits  dollar," 
and  then  "  the  Straits  government  would  issue  the  new  dollars  in  ex- 
change for  gold,  and  at  the  fixed  rate."  °- 

The  proposals  of  the  committee  were  almost  immediately  adopted. 
On  June  25,  1903,  an  order  Avas  issued  for  the  coinage  of  a  new 
Straits  Settlements  dollar,  to  be  of  weight  and  fineness  like  the  Bom- 
bay dollars,  but  to  bear  distinctive  inscription  and  devices.  A  few 
weeks  later  the  new  dollars  began  to  be  struck  at  the  Indian  mints, 
and  the  first  consignment  of  new  coins  reached  the  Straits  in  October, 
1903.  Upon  October  2  the  further  importation  into  the  colony  of 
Mexican  or  British  dollars  or  Japanese  yen  was  prohibited,  the  export 
of  the  new  local  dollars  being  made  illegal  at  the  same  time.  The 
next  step  will  be  the  demonetization  and  reminting  of  the  silver  coins 
now  circulating  in  the  country;  and  then  w^e  may  expect  a  halt  in  the 
proceedings,  in  the  expectation  that  the  new  dollars  will  rise  to  a 
fictitious  value  in  excliange  for  English  gold,  as  the  rupee  rose  in 
British  India  after  the  suspension  of  its  coinage  in  1893.  The  exact 
rate  at  which  the  par  of  exchange  will  eventually  be  fixed  has  not  yet 
been  announced,  but  it  is  generally  surmised  that  it  will  be  at  2  shil- 
lings— a  rate  virtually  the  equivalent  of  that  recently  ado]3ted  in  the 
Philippines. 

The  execution  of  this  plan  will  mean  the  complete  exclusion  of  the 
Mexican  coins  from  another  extensive  region  in  which  they  have  long 
held  sway;  and  the  change  will  affect  not  only  the  Straits,  but  also 
many  of  tlie  surrounding  native  states  which  constitute  the  hinter- 
land of  the  Straits,  whose  trade  is  principally  with  that  colony  and 
whose  people  are  naturally  co-users  of  the  Straits  currency.''  In  fact, 
the  new  laws  regarding  the  Straits  currency  were  stretched  to  cover 
the  Fedei-ated  Malay  States  by  a  series  of  enactments  and  proclama- 
tions even  before  the  end  of  1903.'^  The  influence  of  the  change  is  likely 
to  be  still  more  extensive,  in  that  similar  methods  may  be  adopted  in 
some  of  the  other  English  colonies  of  the  Orient,  and  will  not  im- 
probably be  followed  in  neighboring  countries  as  well.  x\s  we  shall 
see,  an  almost  identical  j^lan  seems  about  to  be  adoj^ted  in  the  French 
oriental  possessions,  to  which  we  shall  next  direct  attention. 

a  Report  of  the  Straits  SettlenuMits  Currency  Committee  fCd.,  1,.5.5G],  190.3. 
pp.  12-13.  Many  details  as  to  the  situation  in  the  Straits  Settlements  can  be 
found  in  the  Minutes  of  Evidence  and  Ajjpendices  [Cd.,  1,585]. 

''August  lluttenhacli.  The  Silver  Standard  and  the  Straits  Currency  Ques- 
tion, Singapore,  1903,  pp.  102-103,  127-128. 

f  See.  for  instance,  tiie  order  cited  in  the  Report  of  the  United  States  Com- 
mission on  International  Exchan,^e,  j>.  2!)4. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       483 
L\I)0-(MII\A. 

The  monetary  history  of  the  French  colonies  in  China  runs  closely 
})a)-allel  to  that  of  the  English  colonies  which  we  have  jnst  sketched. 
Here,  again,  \vc  have  a  region  in  which  the  Spanish  and  later  the 
Mexican  dollars  had  long  circulated  side  by  side  with  native  cur- 
rency; and  here  again  we  find  the  dominant  Kuroi)ean  power 
undertaking  to  displace  the  Mexican  coins,  first  hy  attempting  to 
force  its  own  money  into  circulation,  then  by  issuing  an  imitation 
of  the  Mexican  dollar,  and  now  at  last  by  the  proposed  adoption  of  a 
gold  "  exchange  standard.''  France  came  into  possession  of  Cochin 
China  in  18G2,  and  the  following  year  her  coins  were  given  legal 
tender  poAver  there,  and  began  to  be  paid  out  by  her  disbursing 
officers.  They  never  attained  a  wide  currency,  however,  and  when, 
a  few  years  later,  the  depreciation  of  silver  set  in,  they  w^ere  of  so 
much  greater  value  in  France,  where  they  retained  their  fictitious 
power  of  exchange,  that  they  were  no  sooner  brought  into  the  colonies 
than  they  Avere  re-exported.  Moreover,  the  trade  of  Cochin  China, 
and  of  Annam  and  Tonking  regions  which  were  later  annexed,  was  for 
the  most  part  with  the  ports  of  China,  Singapore,  and  Hongkong, 
Avhere  the  P^rench  coins  Avere  miavailable  and  where  the  Mexican  dol- 
lars were  the  usual  medium  of  exchange,  and  were  continually  being 
exported  and  imported  in  settlement  of  trade  balances.  The  futility 
of  the  efforts  to  substitute  the  French  currency  system  eventually 
became  clear  to  the  French  home  Government,  Ax^ry  much  as  the  simi- 
lar situation  in  the  P^nglish  colonies  had  a  few  years  before  become 
clear  to  the  English  Government,  and  France  then  fell  back  upon  the 
expedient  which  England  later  tried.  With  the  recognition  of  the 
expediency  of  retaining  the  dollar  currency  the  question  arose  whether 
a  French  dollar  might  not  be  substituted  for  those  of  Mexico  and  the 
United  States  then  current  in  the  country. 

The  coinage  might  in  this  way  still  be  made  to  affirm  the  sover- 
eignty of  France,  even  if  the  usual  French  coins  could  not  be  made  to 
circuiate.  The  experiment  Avas  undertaken  tentatively  in  1879  Avith 
the  issue  of  fractional  pieces  of  the  dollar."  Then  in  1885  a  French 
piastre  de  commerce  of  identical  weight  Avith  the  American  trade 
dollar  began  to  be  struck.  Like  its  American  prototype,  the  French 
trade  dollar  Avas  faA^orably  receiA^ed,  both  on  account  of  its  accurate 
fabrication  and  its  superior  Aveight,  Avhich  someAvhat  exceeded  that 
of  the  Mexican  dollar  and  the  Japanese  yen.  This  slight  surplus, 
hoAveA'er,  Avhich  rendered  the  French  dollars  popular  among  the 
Chinese,  Avas  in  fact  a  serious  shortcoming  as  regards  their  circula- 
tion; for,  although  13,170,471  Avere  struck  during  the  next  decade, 
scarcely  any  Avere  eA'er  seen,  the  majority  being  hoarded  or  melted 
doAvn  by  the  Chinese.  Upon  this  account  in  1895  the  Aveight  of  the 
French  dollar  Avas  reduced  beloAv  the  standard  of  the  Mexican  coin 
and  almost  to  that  of  the  yen ;  and  since  then  the  French  dollar, 
like  the  British  dollar,  has  developed  into  a  formidable  rival  for  the 
coins  of  Mexico. 

"  E.  Zay,  Histoire  iiioni'taire  des  colonies  fraiKjaises  d'apres  les  docnnients 
officiels.  Paris.  ISOO,  ])p.  nr.-12.'j;  Au.u.  Arnaune,  La  iiionnaio,  lo  cmlit,  ct  lo 
ehaiige,  2d  edition,  Paris,  1003,  pp.  291-328. 


484       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

In  the  period  since  the  new  French  dollar  began  to  be  issued  in 
1895  down  to  December  31,  1903,  as  many  as  44,000,000"  of  these 
pieces  had  been  struck;  and  they  appear  now  to  circulate  freeW  and 
without  friction  alongside  of  the  other  dollars. 

Within  recent  months,  in  Indo-China  as  in  the  Straits  Settlements, 
a  further  stej)  has  been  in  contemplation.  Plans  have  been  debated 
for  bringing  the  currency  around  to  a  gold  standard  upon  the  lines 
of  the  currency  reforms  in  British  India  and  the  Straits  Settle- 
ments; and,  if  the  changes  now  under  consideration  are  adopted 
and  successfully  carried  through,  it  will  soon  be  a  question,  not 
merely  of  increasing  competition  for  the  INIexican  dollars,  but  of 
their  supersession  and  legal  exclusion  from  still  another  large  tract 
in  the  Orient.^ 

JAPAN. 

Japan  represents  another  of  the  oriental  countries  in  which  the 
Mexican  dollar  was  for  long  firmly  intrenched,  resisting  repeated 
efforts  made  to  exclude  it,  but  from  which  it  has  at  last  been  com- 
pletely driven  within  the  course  of  the  past  twenty  years.  When 
the  newdy  constituted  Government  of  Japan  some  thirty  years  ago 
set  about  the  reorganization  of  the  currencv,  and  established  a  mint 
at  Osaka,  with  the  machinery  purchased  from  the  British  Govern- 
ment after  the  fiasco  at  Honglcong,  they  were  confronted  with  the 
universal  employment  of  the  Mexican  dollar.  Though  desirous  of 
establishing  the  currency  upon  a  gold  standard,  the  Government 
thought  it  necessary  to  yield  to  the  general  predilection  for  the 
familiar  silver  dollar,  but  hoped  to  meet  the  demand  for  it  with  a 
coin  of  local  mintage.  They  provided  in  the  act  of  May  10,  1871,  for 
the  issue  of  a  silver  coin  to  be  known  as  the  "  yen,"  of  size  and  quality 
like  the  dollar  of  Mexico,  and  gave  it  the  ])ower  of  legal  tender  in 
the  treaty  ports,  intending  that  it  should  take  the  place  there  of  the 
familiar  Mexican  coin.  The  yen,  like  the  Hongkong  elollar  of  1860, 
in  reality  contained  about  three  grains  less  of  pure  silver  than  the 
standard  Mexican  dollar,  and,  when  a  few  years  later  it  was  observed 
that  foreign  coins  still  circulated,  the  situation  was  at  once  attributed 
to  the  underweighting  of  the  yen.  The  Japanese  upon  this  account 
in  February,  1875,  raised  the  weight  of  their  coins  from  416  to  420 

«  The  total  issue  of  the  second  series  of  French  trade  dollars  is  as  follows : 

1895 1,782.012 

1890 1- 11,  858,  018 

1897 . 2,511,128 

1898 4,303,958 

1899 4,  G81,  244 

1900 -. 13,  318,  S50 

1901 3,150,000 

1902 3,  32(i,  534 

1903 10,07(5,893 

Total  nine  years 55,008,638 

From  the  Bulletin  de  statistique  et  de  legislntion  ooniparee. 

^  Sec  tiK'  iirticies  of  I'muI  Leroy-Beiuilieu  in  the  Econoniiste  frant^ais  for 
.Tiiiuiary  10  and  17,  lOO.'i;  also  the  HeiK)rt  of  the  United  States  Conunission  on 
International  Exchanfie,  Aiii)en(lix  M,  pj).  o'O-.'iOl.  The  various  decrees  and 
ordinances  reunlatinj;  th<»  currency  of  Indo-China,  issued  between  1802  and 
1900,  may  he  found  in  tlic  Ita))iK)i-t  du  directeur  de  la  monnaie  au  ministre  des 
finances.     Septieme  auuee,  1902,  pi),  37S-425. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       485 

jj^-ains.  the  weight  of  the  successful  American  trade  dollar,  at.  the 
same  time  oh:iii<iiiig  the  name  of  yen  to  boyeki  gin,  or  trade  dollar. 
The  experiment  proved  futile  as  a  means  of  expelling  the  undesired 
j)ieces.  It  had  in  fact  just  the  contrary  eti'ect,  of  attracting  them  to 
Jaj)an  in  exchange  for  the  heavier  Jai>anese  coins;  and  in  1878  the 
Government  decided  to  suspend  the  further  coinage  of  the  trade 
dolhir  and  to  revert  again  to  the  issue  of  the  lighter  yen.  At  the 
same  time  they  gave  to  that  coin  full  legal-tender  power  throughout 
the  country. 

During  the  years  wliich  followed,  as  the  value  of  silver  declined, 
the  Japanese  mint  Avas  called  upon  to  coin  larger  and  larger  amounts 
of  that  metal:  and  the  yen  grew  more  and  more  familiar  and  more 
and  more  poi)idar.  It  became  in  fact  a  doughty  rival  of  the  Mexi- 
can dollar,  not  merel}'  in  Japan,  but  in  all  of  the  great  entrepots  of 
the  Far  East.  Being  of  superior  design  and  less  frequently  counter- 
feited, it  enjoyed  peculiar  credit  throughout  the  Orient,  and  before 
the  appearance  of  the  Bombay  dollar  in  the  middle  nineties  the 
Japanese  silver  coins  were  probably  the  most  familiar  of  all  coins  in 
the  Straits  Settlements  and  the  Malay  Archipelago. «  and  were  freely 
current  also  in  most  of  the  ports  of  China,  Korea,  Indo-China,  and 
Siam.  Between  1871  and  1897  more  than  105,000,000  of  them  were 
issued,  and  of  this  total  more  tlian  110,000,000  had  l)een  sent  abroad. 
So,  while  the  JajDanese  yen  gradually  ousted  the  Mexican  dollars  from 
the  Japanese  trade  centers,  at  the  same  time  they  had  invaded  much 
of  the  territory  which  hitherto  had  been  the  exclusive  domain  of  the 
Mexican  coins. 

Just  at  this  juncture,  Avhen  the  Japanese  silver  yen  had  conquered 
so  many  of  the  markets  of  the  East,  the  Japanese  stopped  their  coin- 
age, and  at  the  same  time  took  steps  toward  their  demonetization 
within  the  boundaries  of  Japan.  The  fluctuations  in  the  price  of  sil- 
ver had  for  long  rendered  trade  with  Europe  and  America  exceed- 
ingly unreliable,  and  for  years  the  government  of  Japan  had  had 
under  advisement  the  possible  adoption  of  a  gold  standard.  The 
receipt  of  the  indemnity  money  from  China  after  the  war  of  1894-95 
at  last  made  this  possible,  and  in  March,  1897,  a  law  was  promulgated 
declaring  a  new  gold  coin,  thereafter  to  be  known  as  the  yen,  to  be  the 
standard  unit,  and  restricting  the  future  coinage  of  silver  to  under- 
weighted  coins  of  subsidiary  denominations.  The  coinage  of  the  sil- 
ver yen,  which  had  found  so  ready  a  market  from  one  end  of  the 
Orient  to  the  other,  thus  came  to  an  end.  Those  of  the  coins  which 
had  remained  within  the  country — about  46  millions  in  alh--were 
redeemed  in  gold,  and  were  either  made  into  subsidiary  silver  or  sent 
abroad  for  sale  in  Hongkong,  Shanghai,  and  elseAvhere.  After  the 
81st  of  April,  1898,  the  circulation  of  the  silver  yen  in  Japan  w^as  pro- 
hibited, and  after  Jidy,  1898,  it  was  no  longer  acceptable  by  the  Gov- 
ernment for  taxes  or  public  dues. 

In  the  course  of  two  decades  the  Mexican  dollar  had  l»een  driven 
fi'om  Japan,  and  there  had  even  ceased  to  be  in  that  country  any  coin 
of  equivalent  size  and  denomination.  Yet  in  the  meantime  Japan 
had  injected  into  the  oriental  trade  the  greatest  number  of  competing 

a  See  Coiuit  Matsuknta  Masayoshi,  Report  on  the  Adoption  of  the  Gold 
Standard  in  .Tai)an.  Tokyo.  1899,  pp.  284-.30(;.  Upon  tlio  f,'oneral  subject  of 
.lapanose  currency  this  work  and  Count  Matsukata's  Report  on  the  Post- 
bellum  Financial  Administration  of  Jaijan  (Tokyo,  I'JOl)  are  the  best  authorities. 


486       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

coins  that  the  Mexican  doHar  had  ever  encountered  up  to  that  time. 
It  might  be  added,  in  passing,  that  in  the  newly  acquired  territory  of 
Formosa'^  the  Mexican  dollar  and  the  Japanese  yen  also  ceased  to  be 
legal  tender  after  1897-98,  and  that  the  gold  standard  coins  oi  Japan 
were  installed  in  their  stead. 

CHINA. 

If  we  turn  last  of  all  to  China,  Ave  find  even  here  the  sway  of  the 
Mexican  dollar  meeting  challenge  in  our  day.  Ever  since  the  six- 
teenth century,  Avhen  the  Spanish  dollars  were  introduced  from  the 
Philippines,  these  coins  have  been  widely  used.  The  Chinese  Gov- 
ernment until  very  recently  had  never  issued  silver  coins  of  its  own, 
but  local  rulers  and  well-known  firms  had  authenticated  the  standard 
of  the  foreign  coins  and  given  them  a  local  character  by  marking  them 
with  a  special  stamp.^  The  coins  by  far  the  most  familiar  to  the  Chi- 
nese were  those  of  Spain  and  Mexico,  circulating  by  weight,  and  often 
stamped  or  chopped  by  their  indorsers  beyond  all  possibility  of  recog- 
nition. During  the  past  decade,  however,  these  Mexican  dollars  have 
been  subjected  to  competition  in  China,  not  only  with  the  British  dol- 
lars and  Japanese  yen,  but  also  with  local  issues,  very  much  as  they 
have  in  other  countries.  Various  of  the  Chinese  provinces  have 
established  their  own  minting  machinery,  and  have  begun  to  turn  out 
local  coins  in  imitation  of  the  Mexican  dollars.  The  first  such  mint 
was  opened  in  Canton  in  1890,  but  to-day  similar  provincial  establish- 
ments are  coining  dollars  at  Foochow,  Nankin,  Chungking,  Tientsin, 
Moukden,  and  Kirin,''  and  in  April,  1903,  an  imperial  edict  provided 
for  the  establishment  of  a  national  mint  at  Peking  to  issue  uniform 
coins  for  the  whole  Empire.'' 

The  coins  as  yet  struck  in  the  local  mints  have  been  unreliable  as  to 
weight  and  fineness,  and  we  have  no  complete  record  as  to  their 
amounts.  They  appear  to  have  met  with  little  success  in  supplant- 
ing the  Mexican  dollars.  With  the  opening,  however,  of  a  carefully 
regulated  imperial  mint  maintaining  an  unvarying  standard,  and  the 
adoption  of  these  national  coins  by  the  various  treasuries  for  pur- 
poses of  public  revenue  and  expenditure,  the  eventual  supersession  of 
the  Mexican  dollar  within  its  last  oriental  stronghold  may  be  confi- 
dently expected.  Should  the  suggestion  of  the  American  Commission 
on  International  Exchange,  that  China  issue  at  once  200  million  such 
coins,  be  adopted,  this  outcome  will  be  attained  in  a  very  short  time.*' 

a  Matsukata,  The  Adoption  of  the  Gold  Standard  in  Japan,  pp.  379-.389. 

6  Ulion  the  general  suhject  of  (7'hlnese  currency  see  II.  B.  INIorse,  "  Currency 
and  measures  in  China,"  in  the  Journal  of  the  China  Branch  of  the  Royal  Asiatic 
Society,  vol.  xxiv  (1888-8!))  ;  Talcott  Williunis,  "  Silver  in  China,"  in  the  Publi- 
cations of  the  American  Academy  of  I'olitical  and  Social  Science  for  INIay  8, 
1897;  J.  Edkins.  Chinese  Currency.  Shan.i^hai,  1901.  and  the  article  of  Cousul- 
(ieneral  Jernifjcan  in  the  History  of  Bankinj:  in  All  Nations,  New  York,  189G. 

'•  Rei'ort  of  the  Director  of  the  Mint,  1902,  p.  280. 

'1  Ibid..  1903,  p.  217. 

In  the  commercial  treaties  recently  concluded  with  China  by  Great  Britain 
(Sei»teml)er  .5,  1903),  the  United  States  (October  8,  1903),  and  Japan  it  was 
distinctly  stipulated  that  China  "take  the  necessary  steps  to  provide  for  a  uni- 
f(inn  national  coinaj^e."  Rei)ort  on  the  Inlroduction  of  the  Gold  Exchanjjo 
Stiindard  into  China  and  other  Silver-usinj,'  Countries,  submitted  to  the  Secre- 
lary  of  State  October  1,  1903,  by  the  Coiumissi(,n  on  International  Exchange,  ]>p. 
201,  221,  224. 

c  Report  of  Commission,  p.  52. 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       487 

Til  a  I'lituiv.  tluMK  ^vlli(•h  is  not  reiiioto,  the  ^Mexican  dollar  will 
cease  to  fulfill  the  functions  of  an  international  coin,  which  it  has  per- 
formed without  interruption  for  nearly  four  centuries.  The  coins 
Avhich  have  served  so  Ion*?  as  money  for  most  of  the  peoples  of  East- 
ern Asia,  in  the  British  ])()ssessi()ns  of  North  America,  in  tlie  Spanish 
"West  Indies,  and  elsewhere,  will  no  longer  he  current  outside  of  the 
Mexican  boundaries.  Nearly  half  a  century  has  already  ehi])se(l  since 
these  coins  were  banished  from  the  United  States  and  Canada,  but 
until  within  a  decade  they  had  held  their  own  in  the  Orient.  One  by 
one  in  the  East  rival  dollars  have  appeared,  lived  for  a  brief  day,  and 
disappeared.  The  British  dollars  of  Honokonji;  were  issued  for  only 
two  years  (1SGG-18()8)  ;  the  American  trade  dollars  survived  for  four- 
teen years  (1873-1887;  and,  last  and  most  formidable  of  all,  the 
Japanese  yen  were  issued  for  twenty-six  years  (1871-1807). 

Two  rival  dollars  of  importance  continue  to  be  coined  and  used 
ihrouffh  the  Orient  to-day — the  British  dollars  of  Calcutta  and 
Bombay  and  the  Erench  piastres  of  Indo-China — but  the  expulsion  of 
the  Mexican  dollar  nnist  be  credited  not  so  much  to  the  competition  of 
these  silver  coins  as  the  swift  and  all-pervading  drift  of  the  Orient 
toward  a  gold  standard,  which  threatens  the  extinction  of  the  Mexican 
and  the  competing  dollars  alike.  The  already  accomplished  adoption 
of  gold  as  a  standard  in  Japan  and  in  the  Philippines  has  virtually 
excluded  the  hitherto  familiar  coins  from  those  regions,  and  the  pros- 
pective changes  now  hanging  fire  in  the  Straits  Settlements,  Indo- 
China,  and  even  in  the  Chinese  Empire  itself,  will  probably  seal  the 
doom  of  the  Mexican  dollar  throughout  the  rest  of  the  East.  The 
coin  which  has  literally  been  a  ""  universal  unit,"  known  in  every 
region  of  the  earth,  will  soon  have  only  a  local  range;  and  what  is 
more,  as  we  shall  presently  see,  it  is  not  unlikely  that  even  in  Mexico 
it  will  be  superseded,  or  become  ere  long  only  a  subordinate  and  over- 
valued token. 

MEXICO. 

The  general  movement  which  we  have  been  observing  would  seem 
destined  to  leave  Mexico  isolated  as  regards  her  currency  and  seriously 
crippled  as  regards  the  most  important  factor  in  her  export  trade. 
But  Mexican  financiers  have  for  some  time  foreseen  the  situation 
which  was  impending,  and  the  Government  has  wisely  done  what  it 
could  to  provide  against  such  contingencies.  Since  early  in  1903 
monetary  commissions  and  subcommissions  appointed  by  the  Govern- 
ment have  been  busily  investigating  plans  of  currency  reform  for 
Mexico  which  will  bring  her  monetary  system  into  line  with  those  of 
most  of  the  great  trading  nations,  and  they  have  been  spreading  before 
her  public  l)ewildering  arrays  of  figures  and  data  relevant  thereto.'* 

The  proposal  has  now  been  made  by  one  of  these  commissions  to 
close  the  mints  to  the  free  coinage  of  silver,  to  prohibit  the  reimporta- 
tion of  the  present  silver  dollars,  and  to  issue  in  their  stead  a  new 

«Tlie  following  volumes  have  been  issued  by  the  Commission: 

Dittos  para  ol  estudio  cle  la  cuestion  monetaria  on  Mexico,  1!J0.3. 

Datos  fstadisticos  prfparados  por  la  secretaria  de  hacienda  y  credito  pulilico, 
espeeialmente  ])ara  el  estudio  de  la  cuestion  monetaria,  190.3. 

Datos  sohre  rentas  de  fiiicas  urhanas  in  la  eiudad  de  Mexico,  'iUO?,. 

An  excellent  account  cf  the  ^Mexican  cvu'rency  problems  has  been  written  by 
the  secretary  of  the  conuuission.  Sr.  .laime  (Jnrza.  Apuntes  sobre  la  cuestion  de 
la  itlata  en  Mexico.  Duranjxo,  1!>02.  This  is  also  republished  in  the  first  volume 
of  the  Commission's  Datos  mentioned  above. 


488       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

dollar,  which  for  the  future  is  to  be  maintained  at  a  stable  ratio  with 
gold  by  some  such  system  as  that  which  the  United  States  has  put  in 
operation  in  the  Philippines.  Whether,  however,  legislative  approval 
for  these  proposals  can  be  secured  is  a  matter  so  doubtful  that  the 
denouement  of  the  present  agitation  can  not  as  yet  be  safely  surmised. 

Meanwhile  the  Mexican  Government  has  taken  steps  in  another 
line,  and  has  adroitly  ]jromoted  measures  aimed  to  restrict  the  losses 
Avhich  her  mine  owners  were  likely  to  suffer  through  the  dwindling 
export  of  silver  dollars.  The  general  adoption  of  a  gold  standard  in 
the  Orient  threatened  to  reduce  the  market  not  merely  for  the  coins 
of  Mexico,  but  for  her  uncoined  silver  as  well,  and  suggested  the  grim 
possibility  of  an  even  further  decline  in  the  value  of  that  metal.  An 
outlook  so  portentous  for  Mexico's  leading  industry  called  for  imme- 
diate action ;  and  the  Mexican  Government  met  the  situation 
shrewdly,  though,  as  it  proved,  ineffectively.  Her  officials  plainly 
saw  that,  if  the  Oriental  governments  and  the  European  powers, 
especially  those  having  dependencies  in  the  Orient,  could  be  induced 
to  purchase  and  coin  silver  in  regularly  continued  amounts,  notwith- 
standing their  adoption  of  a  gold  standard,  the  foreign  demand  for 
Mexican  silver  might  survive  the  extinction  of  the  Mexican  dollar, 
and  the  price  of  silver  might  be  saved  from  a  further  decline. 

The  American  Government  was  accordingly  approached  by  Mexican 
representatives,  and  solicited  to  cooperate  with  the  other  countries 
concerned  through  diplomatic  channels  in  an  effort  "  to  restore  and 
maintain  a  fixed  relationship  between  the  moneys  of  the  gold-standard 
and  the  silver-using  countries,"  and  after  various  maneuvers  the 
American  Congress  was  induced  in  March,  1903,  to  make  an  appro- 
priation for  this  purpose.  The  upshot  was  the  appointment  of  the 
'•  United  States  Commission  on  International  Exchange,"  which, 
accompanied  by  a  similar  delegation  from  Mexico,  visited  the  leading 
European  capitals  during  the  summer  of  1903,  with  a  number  of 
proposals  for  tlie  stabilizing  of  exchange  rates  between  gold  and  silver 
using  countries.  The  suggestions  advocated  by  the  American  com- 
mission were  of  two  sorts.  First,  they  proposed  the  inauguration  in 
China  of  a  uniform  silver  coinage,  to  be  maintained  at  a  fixed  ratio 
with  gold — a  plan  which  required  that  China  should  "  coin  as  rapidly 
as  possible  200,000,000  silver  coins  *  *  *  about  the  size  of  a 
Mexican  dollar.*""  Second,  they  proposed  that  the  powers  cooperate 
in  maintaining  the  price  of  silver  by  agreeing  for  a  period  of  years 
in  advance  to  purchase  regular  amounts  of  bullion.*     The  Mexican 


«  Report  of  Commission,  p.  52. 

6  The  >)Osition  taken  by  tlie  commissions  lias  been  so  misunderstood  in  many 
quarters  tliat  it  may  be  worth  while  to  call  attention  again  to  the  fact  that  the 
l)uri)oso  was  not  to  increase  the  price  of  silver  but  to  steady  that  price  in  order 
to  stabilize  exchange.  A  great  increase  in  price  was  considered  as  harmful 
as  a  great  decrease— possibly  even  more  harmful. 

■  It  should  be  noted  also  that  no  proi)osal  was  made  to  any  country  to  buy  any 
Inillion  in  order  to  maintain  the  price.  It  was  suggested  only  that  the  purchases 
actually  to  l)e  made  for  coinage  purposes  be  declared  beforehand  and  be  made 
with  regularity — a  suggestion  which  has  been  actually  accepted  and  followed  by 
Great  Britain  in  its  purchases  for  India.  A  careful  reading  of  the  Mexican 
]>ro))Osals  refel-red  to  shows  that  they  were  estimates  as  to  the  probable  needs 
for  actual  coinage  of  the  various  governments.  The  Mexican  commission,  if 
those  estimates  were  approved,  suggested  tliat  the  governments  buy  those 
amounts  with  regularity.  No  sti'onger  ojiponents  of  the  principh'  of  buying  sil- 
vei-  not  needed,  in  order  to  maintain  the  iirice.  could  l)e  found  than  the  Mexican 
commission.  See  Report  of  Commission  on  International  Exchange,  Vol.  I, 
pp.  51,  179,  180,  182,  195-1'J7. 


GOLD    STANDARD    IN    INTERNATIONAL    TRADK,  489 

delegates  even  wont  so  far  as  to  suggest  the  exact  ainonnts  "uhich  each 
Goveriiinent  should  j)ur('hase,  the  combined  engagements  to  aggregate 
an  annual  total  of  !)(;,()()().0()()  ounces."  Either  of  these  plans,  if  real- 
ized, would  help  to  pr*)p  the  sinking  value  of  silver,  would  promote 
greater  stability  of  exchange  with  the  renuiining  silver-using  coun- 
tries, and  incidentally  would  be  of  benetit  to  the  silver-producing 
interests  of  the  world.  Unfortunately,  however,  for  those  concerned, 
the  voluminous  arginnents  of  the  American  delegates  aroused  only  a 
lukewarm  interest.  The  British  representatives  made  no  reply  other 
than  by  a  series  of  vague  and  general  resolutions,''  occupying  less  than 
a  tliii'd  of  a  ])age.''  '^riie  French  commission  replied  with  more  elabo- 
ration, but  expressed  dissent  fi'om  almost  every  detail  of  the  Amer- 
ican ])lan.'' 

Brief  and  A'ariant  opinions  were  also  received  from  the  delegates 
of  Russia,  Gernumy,  and  Holland. 

As  regards  the  reform  of  the  Chinese  currency  (a  proposition 
which  after  all  was  not  an  aft'air  of  direct  concern  to  European  gov- 
ernments), there  was  little  objection  upon  general  principle;  but  there 
were  many  misgivings,  reservations,  and  ditferences  of  view  as  to 
method.  Concerning  the  second  proposition,  that  the  various  gov- 
ernments should  uuike  regular  purchases  of  silver,  the  French  dele- 
gates thouglit  it  "  dangerous  "  and  "  useless  to  dwell  on ;  ^'  the  British 
delegates  opined  that  it  ''  might  be  adopted  as  far  as  possible  in  each 
country,  subject  to  its  monetary  polic}^  and  convenience;"  the  dele- 
gates of  one  or  two  other  countries  courteously  acceded  to  its  prin- 
ciple. But  no  government  seems  likely  to  take  any  step  toward  its 
practical  adoption.'' 

The  efforts  of  the  Mexican  Government  to  secure  international 
assistance  in  support  of  the  silver  market  seem  to  have  been  without 
avail.  Mexico  remains  to-day  still  confronted  with  a  contracting 
market  for  her  leading  export  and  with  one  of  the  knottiest  of  money 
problems  to  disentangle. 

"Report  of  Commission,  pp.  1S7-18S.  p.  129. 

6  The  British  resohitions  were  of  the  form  and  nature  suggested  by  the  Amer- 
ican commission,  who  wislied  only  a  brief  statement  of  general  prineii)les. 
They  met  the  American  views  in  all  particulars  but  one.  They  stated  that  the 
new  silver  coins  for  China  should  be  given  a  gold  value  "  as  soon  as  practi- 
cable." The  Americans  would  have  preferred  the  words  quoted  to  read  "  when 
introduced." 

f  Report  of  Commission,  p.  141. 

it  Report  of  Conunission,  pp.  146-1G2.  The  following  passage  from  the  French 
report  well  illustrates  the  attitude  of  the  French  commission:  "In  order  to 
maintain  the  commercial  quotations  of  silver,  the  producing  countries  invite  the 
consuming  countries  to  give  regularity  to  the  demand,  while  they  declare  them- 
selves unable  to  give  regularity  to  the  supply.  It  is  useless  to  dwell  on  the 
unusual  character  of  a  proposition  which  tends  to  invite  on  tlie  part  of  European 
intervention  contrar.v  to  all  economic  principles  to  fix  the  price  of  a  commodity 
at  the  very  moment  when  it  is  declared  that  fidelity  to  these  same  principles 
prevents  the  giving  of  regularity  to  production." 

e  See  Appendix  F  o,  p.  407.  This  shows  that  the  British  Government  has 
adoi^ted  the  policy  in  its  purchases  for  India  with  the  results  anticipated  by  the 
Conunission  on  International  Exchanges. 


490 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 


Table  1. 


-Prod  net  ion    of   silver — E.stiiinitcd   outiJiit    of   silrcr    in    the   principal 
silver-producing  countries,  in  kilograms   {000  omitted). 


Mexico 

Bolivia 

Peru 

Austria-Hungary . 

Germany 

Russia 

United  States 

Other  countries... 


Total  world's  production. 


1493-1850. 


63,657 

(?)  35,064 

C?)  29, 432 

6,861 

5,&50 

2,031 


6,932 


149,827 


1851-1875. 


12,548 

0  3,650 

•)  1,790 

909 

2,055 

;«8 

5,271 

5,383 


31,004 


1876-1900. 


27,097 

(?)4,260 

(V)  2,570 

1,338 

4,372 

251 

35,071 

16,805 


91,764 


1493-1900. 


103,303 
41,974 
•Xi.  792 

9,108 
12, 277 

2,680 
40,343 
29,120 


272,595 


This  table  is  compiled  for  the  earlier  periods  from  the  estimates  of  Soetbeer  and  Lexis, 
and  for  the  later  periods  from  the  mint  reports  of  the  United  States  and  France. 
Although  many  of  the  figures  are  uncertain  and  have  been  differently  estimated  in  other 
investigations,  I  find  no  variations  which  would  seriously  affect  the  relative  positions  of 
the  different  countries  as  contributors  to  the  world's  silver  supply. 

Table  2.« — Exports  of  Mexico. 
[Exports  expressed  in  millions.] 


Fiscal  years. 

Total  ex- 
ports in 
Mexican 
dollars. 

Exports  of 
silver  in 
Mexican 
dollars. 

Percent- 
age of 
silver  ex- 
ports to 
total  ex- 
ports. 

Percent- 
age of 

coined  sil- 
ver in 

silver  ex- 
ports. 

1881-82                                      - - 

29,207 

41,919 

46,861 

46,812 

43,797 

49,330 

49,079 

60,380 

62,680 

43,426 

75,661 

88,045 

80,084 

95,020 

110,022 

117, 784 

138,068 

148,454 

158,848 

158,009 

168,041 

197,729 

15,822 
28,601 
33,524 

32,878 
29,243 
a3,041 
30,399 
38,157 
38,054 
35,489 
48, 145 
55,479 
45,620 
48,138 
59,056 
59,578 
67,637 
67,2«1 
63,584 
73,431 
59,582 
77,555 

54.17 

68.22 
69.40 
70.23 
66.77 
66.98 
61.93 
63. 19 
60.71 
81.72 
63.63 
63.01 
66.96 
50.60 
53.67 
50.58 
48.98 
45.33 
40.17 
45.83 
35.45 
39.22 

73.69 

1882-83                               - 

80.73 

1883-84              

80. 45 

1884-85                                     - 

77.47 

1885-86                    .-- - -- 

7.5.28 

1886  87                   - 

67.26 

1887-88 -- ---- - 

55.39 

1888-89                                 --- 

59. 87 

1889  90                    -- 

60.89 

1890-91           - 

49.98 

1891-93 ._-. -- -- 

1892-93                    -- 

55.48 
48.97 

1893-94 - - ---- 

1894-95                                           

38.11 
a5.47 

1895-96                             - - 

34.50 

189&-97 ■ 

1897-98 - --- 

24.47 
26.90 

1898-99                                  

20.98 

1899  1900                   

17.10 

1900  1901 - 

23.37 

1901-1903.. 

1902-1903 

19.05 
27.21 

"This  table  is  taken  from  the  Datos  estadisticos  preparados  por  la  secretaria  de  hacienda 
y  credito  publico,  especialmente  para  el  estudio  de  la  cuestion  monetaria,  Mexico,  Palacio 
nacional,  1903. 

Table  3. — Silver  content  of  the  Mexican  dollar  and  its  competitors. 


Name  and  date  of  origin. 


Mexican  dollar 

AniiMMcan  standard  dollar 

Auu'rican  trade  dollar  (1873) 

Sjianish  5  peseta  piece 

SpHiiisli  Philijipine  dollar  (1897) 

Amcriran  Philippine  peso  (1903) 

Hongkong  dollar  (IWUii 

Bombay  and  Calrut  la  dollar  (1895)... 

Straits  SettlciiiiDts  dollar  (1903) 

French  trade  dollar  (1885) 

French  trade  dollar  (1895) 

JapaneH((  yon  (1871) 

Japan(!He  trade  dollar  ( 1875 ) 

Austrian  Maria  Theresa  dollar  (1751) 


■nr<i,-^i^+        Pine-         Pure 
Weight.       jjggg_        gji,^gj._ 


Grains. 
417}? 
412.V 
420' 

■      385§ 

416 
416 
416 
416 
430 
4I65 
416 
430 
433 


9035 
900 
IKX) 

900 

900 
9(K) 
iMK) 
itOO 
900 
<K)0 
<KM) 
9(K) 
8:«i 


Grains. 
377  V 

37U 
378 

347i 

37-1  g 

374? 

374  = 

374? 

378 

375 

3743 

378 

361 


GOLD  STANDARD  IN  INTEKNATIONAL  TRADE.       491 

Tami.k  -1. — (U)hiiitic  of  .s'/7rrr  dollars. 

Mexico — Silvor  coiii;ij;o  of  ;ill  donoiniiKilions  : 

Coloninl  ixM-iod.  1."l.",T-l,S"_'l million  pesos 2,082 

Sinee  imU'iKMuUMU'e.  1S21-1903 do ],4(J(> 

Entire  period.  1537-lOOH do 8,548 

roinasje  of  1-peso  i)ieees,  1874  «- 1908 do 674 

Austria.   Levant  dollars,  1751-1908 146,803,395 

United  States: 

Standard  dolhu's — 

1792-1S73 8,  031,  2.88 

1878-1903 580, 045,  090 

1792-1903 588,  076,  .828 

Trade   dollars,    1S78-1887 35,965,924 

Phili|)pine  uesos.   1903 17,88.8,2.50 

British  India— Bombay  and  Calcutta  dollars,  1895-1903 151,361,594 

Honjjkouj; : 

Dollar.    1861-68 2,  108,054 

Fractional   silver,   1893-1902 23,550,000 

Straits  Settlements— Dollar.  1903 

Indo-Cliina  : 

French  trade  piasters,  first  series,  1885-1895 1.8,170.471 

French  trade  piasters,  second  series,  1895-1903 55,  008,  ()8S 

Japan— 1-yen  pieces.  1871-97 16.5,1.83,170 

3.  COMMENTS  ON   MONETARY  CONDITIONS. 

(a)  TRANSLATION  OF  EXTRACT  FROM  THE  REPORT  OF  THE 
BOARD  OF  ADMINISTRATION  OF  THE  BANK  OF  INDOCHINA  MADE 
AT  THE  GENERAL  IMEETING  OF  SHAREHOLDERS  ON  THE  IITH  OF 
MAY,  1904. 

[Printed  in  I'Economiste  Fran^ais  of  June  25,  1904.] 

The  fluctuations  in  exchange  of  the  white  metal  have  been,  in  fact, 
as  great  in  1003  as  in  the  preceding  year.  The  lowest  and  highest 
rates  on  the  London  market  have  been  respectively  21  ll/16d..and 
281d.  per  standard  ounce.  Parallel  Avith  this  the  value  of  the  dol- 
lar (piastre)  went  down  in  February,  1903,  to  1.95  francs,  and  straf- 
ing from  this  date  it  gradually  increased  in  value  until  it  reached 
2.10  at  the  beginning  of  September,  after  which  it  fell  again.  These 
variations,  which  amount  to  more  than  20  per  cent  between  the 
extreme  rates,  render  business  particularly  difficult  on  account  of 
the  risks  which  they  bring  about. 

In  consequence  the  countries  in  the  Far  East,  one  after  the  other, 
have  sought  for  a  remedy,  or  at  any  rate  for  a  palliative,  for  a  state  of 
affairs  so  dangerous.  Following  the  example  of  Japan,  Siam  has 
tried,  without  having  been  entirely  successful  up  to  the  present,  to 
avoid  tliis  instability  of  exchange  by  adopting  a  monetary  policy  like 
that  so  happily  established  in  British  India. 

The  Phili])|)ines,  on  the  other  hand,  have  carried  out  witli  complete 
success  their  monetary  reform.  Finally  the  Straits  Settlements  are 
now  engaged  in  the  same  work,  and  each  cotuitry  has  coined  a  new 
dollar  for  its  own  special  use,  to  which  it  will  try  to  give  a  fixed  value. 

On  the  other  side,  the  great  producers  (we  mean  the  United  States 
and  Mexico)  being  directly  affected  in  an  important  branch  of  their 
export  trade,  Avere  moAed  by  a  condition  of  affairs  Avhich  Avas  daily 
becoming  Avorse.  They  Avere  then  entirely  prepared  to  giA^e  a  good 
reception  to  the  OA^ertures  from  China  Avhen  that  country,  frightened 

o  Statistics  as  to  the  number  of  these  coins  issued  before  this  period  are  not 
available. 


492       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

by  the  consequences  for  itself  which  the  fall  in  the  value  of  silver 
brought  about  by  compelling"  her  to  make  unforeseen  sacrifices  in 
order  to  ]3ay  in  gold  the  amount  due  on  the  debt  of  the  war  indemnity, 
turned  to  those  countries  to  ask  for  aid,  of  which  it  recognized  the 
necessity.  The  American  and  Mexican  Governments  responded  to 
this  appeal  by  naming  a  Commission,  composed  of  the  eminent  men 
of  each  of  these  two  countries,  most  skilled  in  economic  and  monetary 
questions.  This  Commission  went  to  the  principal  countries  of 
Europe  which  have  business  relations  with  the  Far  East. 

After  a  brief  stay  in  London,  where  it  studied  the  principles  of  a 
monetary  system  suitable  to  be  inti-oduced  into  Cliina,  and  one  the 
estal)lishment  of  which  tlie  English  Government  declared  that  it  was 
willing  to  assist,  the  delegates  of  the  United  States  and  Mexico  came 
to  France.  They  explained  the  purjjose  of  their  mission  and  the 
means  which  appeared  to  them  the  most  appropriate  to  bring  about 
the  result  which  they  desired  to  a  commission  appointed  by  the  min- 
ister of  finance,  under  the  enlightened  and  competent  presidency  of 
the  governor  of  the  Bank  of  France.  Those  of  their  propositions 
which  had  to  do  more  especially  Avith  the  monetary  reform  in  China 
appeared  to  be  sucli  as  to  afford  real  benefits.  The  same  explanation 
was  then  given  in  Germany  and  in  Russia. 

The  "study  of  this  important  question  is  now  being  carried  on  in 
China  itself.  It  would  be  extremely  desirable  if  the  assistance  of  all 
these  good  wishes  would  bring  about  the  establishment  in  China  of  a 
monetary  system  having  more  unity  and  stability  than  the  customs 
now  common  there. 

As  regards  Indo-China,  where  the  fall  in  silver  had  produced  feel- 
ings and  results  no  less  important,  the  thorough  study  which  was 
given  to  the  subject  by  the  department  of  colonies  ended  in  prac- 
tical conclusions,  some  of  wdiicli  have  already  been  put  into  effect.  It 
had  appeared,  in  fact,  that  the  end  to  be  obtained  was  the  establish- 
ment in  their  colony,  so  far  as  economic  conditions  would  permit,  of  a 
system  like  that  of  British  India.  This  result  was  to  be  brought  about 
by  successive  steps.  It  was  necessary  in  the  first  place  to  permit,  even 
to  assist  the  exportation  of  Mexican  dollars,  which  the  export  tax  of 
'>  per  cent  was  retaining  in  the  colony.  It  was  necessary,  then,  to  pro- 
hil)it  the  importation  of  new  Mexican  dollars  in  such  a  way  that  the 
circulation  should  be,  progressively,  more  and  more  made  up  exclu- 
sively of  French  commercial  dollars  (i^iastres).  The  Government  of 
Indo-China  did  not  he^-itate  to  adopt  this  measure,  the  effect  of  which 
was  innnediately  felt,  if  we  may  judge  by  the  reserves  of  our  branches. 
While  last  year  they  were  composed  in  great  part  of  Mexican  dol- 
lars, they  are  no  longer  composed,  so  to  speak,  of  anything  but  French 
dollars.  A^'e  may  all,  then,  foresee  the  time  Avhen  the  Mexican  dollars 
will  have  been  demonetized. 

It  is  indispensable,  however,  before  making  the  French  dollar  the 
sole  legal  tender,  to  introduce  into  Indo-China  a  considerable  quantity 
more  of  that  money.  In  fact,  since  the  adoption  of  that  ])iece  of 
jnone}^  in  1870  and  the  beginning  of  its  minting  in  1885  there  have 
l>een  coined  by  the  mint  in  Paris  uj:)  to  the  31st  of  December,  1903, 
aiul  introduced  into  China,  both  by  the  (iovernment  and  by  our  banks, 
$70,11)4,979,  French  connnercial  doHars,  without  taking  account  of  the 
subsidiary  coins;  or,  as  up  to  the  8th  of  July,  1895,  the  weight  of 
these  dollars  was  27.215  grams,  a  weight  sensibly  greater  than  the 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE.       493 

Mexican  dollar,  there  was  still  a  profit  in  exporting!:  tliem  to  China 
for  melting,  .so  that  it  may  Ix^.  estimated  that  the  $18,140,471  of 
that  weio^ht  which  were  coined  have  disajjpeai'ed  from  cii-culation. 
The  (]uantity  of  money  which  remains  in  the  conntiT  a|)pears,  then, 
still  insufficient,  takin<r  into  consideration  the  importance  of  the 
population  and  the  habit  of  hoarding,  which  remains  among  the 
Annamites. 

i/OTKAXSLATION  OF  \N  ARTICLE  EXTlri.ED  "LA  VIE  FINANCIERE - 
FROM  THE  REVUE  ECONOMIQUE  INTERNATIONALE  OF  MARCH, 
1904. 

The  year  1008  added  still  more  to  the  monetary  discredit  of  silver 
in  spite  of  certain  appearances,  and  in  spite  notably  of  the  better  sup- 
port of  the  price  of  the  white  metal  on  the  London  market.  Silver 
was  ruling  still,  in  fact,  ^^  ithout  exception,  as  a  monetary  standard 
throughout  the  Far  P^ast,  India  and  Japan  excepted,  when  at  the  end 
of  15)02  the  measures  taken  by  Siam  were  accompanied  in  the  neigh- 
boring colonies,  and  even  in  China,  by  a  movement  of  reform  in  the 
monetary  systems  which  has  continued  throughout  the  year  1908. 

By  a  decree  of  November  25,  1902,  the  Siamese  Government  had  by 
implication  substituted  gold  for  silver  as  the  base  of  the  monetary 
system,  by  giving  to  the  tical  of  silver  a  fixed  rate  of  exchange  in  rela- 
tion to  the  pound  sterling.  It  was  doubted  at  first  whether  the  reform 
Avould  be  seriously  followed  up.  Would  the  Siamese  Government  be 
in  a  condition  to  maintain  the  rate  adopted?  Such  a  question  was 
certainly  justified  after  all  the  difficulties  which  were  felt  in  India  by 
England  to  carry  out  su(;h  a  reform  after  1898.  But  the  Siamese 
Government  proceeded  cautiously,  raising  only  gradually  the  nominal 
value  of  the  tical.  Representatives  of  the  banks  led  the  Government 
to  adopt  in  the  first  place  the  rate  of  20  ticals  for  a  pound ;  then  the 
price  of  silver  having  improved  little  by  little,  this  rate  was  without 
ilifficulty  carried  to  18f  ticals  per  pound  on  the  11th  of  March,  and  to 
iSi  in  October,  approaching  thus  to  the  limit  of  17  ticals  per  pound, 
which  the  Government  proposes,  for  the  present  at  any  rate,  to  reach 
definitively.  The  legal  ratio  of  gold  to  silver  will  be  found,  then,  to 
have  been  raised  from  1  to  40  to  about  1  to  84. 

At  the  same  time  that  the  Siamese  reform  was  made  public  the 
English  and  French  Governments  each  created  a  connnission  charged 
Avith  studying  the  question  whether  the  time  were  opportune  to  bring 
about  a  like  reformation  in  the  monetary  systems  of  their  depend- 
encies nearest  Siam,  the  Straits  Settlements  and  the  Malay  States  on 
the  one  hand  and  French  Indo-China  on  the  other. 

The  English  commission,  which  sat  at  London,  went  into  a  thor- 
ough investigation  of  the  ditlerent  interests  affected.  The  results 
were  ])ublished  in  May,  1908.  After  having  cleverly  freed  its  hands 
by  declaring  that  in  the  actual  condition  of  the  monetary  systems  the 
question  was  only  that  of  doing  away  with  commercial  uncertainty, 
or  rather  of  transferring  it  from  one  frontier  to  the  other — from  the 
frontier  of  the  countries  on  a  gold  l)asis  to  that  of  countries  on  a  silver 
l)asis — the  commission  busied  itself  with  calculating  the  relative 
importance  of  the  two  commercial  parties  interested.  It  tiien  declared 
that  the  business  of  the  Straits  Settlements  with  countries  on  the  gold 
basis  was  far  superior  to  the  transactions  with  countries  on  the  silver 
basis. 


494       GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 

Nevertheless,  the  commission  conchuled  prudently  in  these  words: 
"  We  do  not  believe  that  a  gold  standard  ought  to  be  imposed  on  the 
Straits  Settlement  against  the  will  of  the  Government  and  of  the 
population,  but  we  think  that  the  Government  of  His  Majesty  ought 
not  to  raise  any  objection  to  the  principle  of  the  change,  provided  that 
the  Government  of  tlie  Straits,  after  having  studied  all  phases  of  the 
question,  were  to  decide  finally  in  favor  of  the  change  from  the  silver 
standard  to  the  gold  standard."'  In  view  of  this  eventuality,  the 
commission  indicated  besides  what  steps  the  reform  policy  should 
follow.  It  would  be  suitable  to  create  a  special  kind  of  a  dollar  for 
the  Straits,  exclusively  coined  by  the  State,  and  intended  to  circulate 
at  first  concurrently  with  the  trade  dollars  and  the  Mexican  dollars. 
Then  these  last  moneys  would  be  gradually  eliminated  from  the  circu- 
lation and  their  use  prohibited.  Finally,  a  fixed  rate  of  exchange 
woidd  be  adopted  betAveen  the  pound  and  the  new  dollar.  The  Gov- 
ernment would  make  secure  the  maintenance  of  this  parity  by  a  policy 
similar  to  that  followed  in  India.  The  suggestions  were,  in  fact 
adopted  in  September  by  the  Government  of  the  Straits  and  were 
extended  to  the  Federated  Malay  States.  The  first  shipment  of  the 
new  dollar  arrived  in  the  colony  on  the  3d  of  October. 

The  results  of  the  work  of  the  commission  appointed  in  France  on 
the  6th  of  December,  1902,  to  study  the  monetary  system  of  Indo- 
China  have  not  been  published.  However,  from  information  col- 
lected by  representatives  of  parliamentary  committees,  as  well  as  by 
certain  journals,  it  is  clear  that  its  conclusions  have  been  substantially 
the  same  as  those  of  the  English  commission  of  the  Straits  Settle- 
ments. It  appeared  that  the  stabilization  of  the  rate  of  exchange  of 
the  dollar  (piastre)  at  a  fixed  value  in  gold  was  desirable,  but  that 
certain  preparatory^  measures  ought  to  bo  taken  first.  It  was  neces- 
sary to  extend  the  circulation  of  the  French  dollars,  to  substitute  them 
little  by  little  for  the  Mexican  dollars,  and  finally  to  prohibit  the  use 
of  the  latter.  Only  then  could  the  gold  standard,  in  terms  of  the  law 
at  least,  be  introduced.  This  policy,  furthermore,  has  not  remained  a 
mere  plan;  they  have  purchased  silver;  they  are  coining  new  dollars. 
The  first  part  of  the  programme  is  being  put  into  effect. 

4.  COINAGE,  CURRENCY,  AND  EXCHANGE,  1903. 

[From  the  Indian  financial  statement  for  1904-5,   Indian  office,  Marcli  23,   1904.] 

19.  During  the  year  now  drawing  to  a  close  our  coinage  operations 
have  been  on  a  very  large  scale,  and  the  issues  of  new  rupees,  includ- 
ing recoinage  of  withdrawn  issues,  have  amounted  to  no  less  than  a 
sum  of  R.  13,94,91,408,  in  addition  to  which  we  coined  for  native 
states  rupees  to  the  value  of  R.  12,15,682.  I  submit  the  figures  of 
coinage  during  the  last  four  years: 

Rupees. 

1900-1901 17,  14,  79,  318 

1901-2 4,  95,  20,  4(>0 

1902-3 11,  27,  22,  080 

1903-^(11  months  only) 14,07,07,090 

20.  I'here  have  been  very  heavy  demands  for  currency  in  connection 
with  the  disposal  of  the  bumper  rice  crop  in  Burma,  the  large  cotton 
crops  in  Bombay  and  central  India,  and  the  generally  good  crops  of 
cereals  and  seeds.  The  demands  for  currency  began  this  year  some- 
what earlier  than  usual,  and  the  strain  on  our  resources  was  at  its 
height  toward  the  close  of  the  first  week  of  January,  fully  six  to 


(;()IJ>  STANDAKI)  IN  INTKKNATK »N AL  TRADE. 


495 


seven  Aveeks  before  the  usual  period,  A  certain  nervous  anxiety  pre- 
vailed for  a  time  in  financial  circles,  particularly  in  Calcutta,  induced 
by  the  rapid  and  unusually  early  decrease  in  the  stock  of  silver  coin 
held  in  the  currency  reserve,  which  fell  on  the  Tth  of  January  to  so 
low  a  figure  as  IJ.  7,r)0,7('),000.  Although  the  strain  came,  as  I  have 
pointed  out,  unusually  early  and  surprised  many,  government  had 
taken  measures  in  good  time  to  meet  possible  difliculties,  and  within 
one  Aveek  from  the  date  of  low-water  mark — that  is,  by  January  15 — 
and  notwithstanding  the  continuance  of  very  heavy  demands,  Ave 
added  approximately  a  crore  to  the  amount  of  rupees  in  the  currency 
reser\x,  and  by  the  end  of  February  Ave  held  in  the  currency  reserve 
approximately  lO'l  crores,  or  about  8j  crores  more  than  on  January  7. 
In  this  connection  I  may  mention  that  the  AvithdraAvals  of  rupees 
from  the  currency  reserve  during  the  single  month  of  December 
amounted  to  no  less  than  K.  4,05,23,000.  The  nearest  approach 
hitherto  to  this  extraordinary  figure  Avas  in  January,  1903,  Avhen  the 
AvithdraAvals  reached  R.  3,77,17,000. 

21.  I  submit  a  table  Avhich  I  think  wall  be  found  of  interest,  show- 
ing month  by  month  the  gain  or  loss  in  the  stock  of  rupees  held  in  the 
currencA'  reserve  during  the  last  four  years,  such  gain  or  loss  being 
calculated  Avithout  reference  to  the  additions  Avhich  haA^e  been  made 
from  time  to  time  by  ncAv  coinage.  It  Avill  be  observed  that  the  total 
loss  during  the  jjeriod  has  amounted  to  approximately  21f  crores, 
and  I  may  mention  that  the  amount  of  ncAV  rupees  coined  for  govern- 
ment, exclusiA^e  of  recoinage  of  Avithdrawn  rupees  of  1835  and  1840 
issues,  has  during  the  four  years  amounted  to  approximately  26^ 
crores.  The  AvithdraAvals  of  rupees  from  the  currency  reserve  do 
not  in  any  Avay  necessarily  correspond  Avith  the  amounts  of  ncAv  coin- 
age, but  there  Avill,  in  existing  circumstances,  be  a  certain  general  con- 
nection betAveen  them.  There  Avill  only  be  a  direct  correspondence 
Avhen  gold  is  taken  from  the  currency  reserA^e  to  purchase  silver 
for  coinage;  but  silver  may  also  be  purchased  from  the  proceeds  of 
council  drafts  or  locally,  and,  moreover,  differences  Avill  arise  on 
account  of  coinage  for  natiA^e  states  and  coinage  to  replace  AvithdraAvn 
rupees  of  early  issue.  The  two  latter  sources  of  differences  have 
been  alloAved  for  in  the  folloAving  statement: 

[In  thousands  of  rupees.] 


April 

May 

June 

July 

August 

September. 

October 

Novomljer . 
December  . 
January  ... 
February .. 
March 


Month. 


1900-1901. 


Total  gain  or  loss 

Add  on  account  of  coinage  of  native 
states  in  190(J-1901  and  withdrawals 
of  old  issues 


-  2,21,73 
+  10,37 
+  1,00,13 

-  68,40 

-  2,06,69 

-  1,94,51 

-  1,90,43 

-  1,03,08 

-  1,76,25 

-  2,04,44 

-  2,04,06 
+  1,62,98 


1901-2. 


Net  gain  or  loss 


-12,90,11 


+  .3,73,69 


-  9,22,42 


+  Gain. 


-1,77,62 
+  17,84 
+2,59,88 
+    51,30 

-  80,48 

-  77,73 
+    76,55 

2,93 
-1,95,18 

-  83,60 
-1,10,69 
+    34,51 


+ 


2,82,19 


+1,16,58 


1,65,61 


1902-3. 


-  85,07 
+  45,50 
+  1,57,57 
+    91,34 

-  53,18 
-1,09,34 

-  47,60 

-  88,25 
-2,14,29 
-3,77,17 
-1,93,86 

-  3,14 


-8, 77, 49 


+8,07,25 


-     70,24 


1903-4. 


-  2,14,76 

-  18,26 
+  91,55 
+  21,62 

-  1,15,00 

-  2,25,77 
+  12, ;« 

-  1,97,S2 

-  4,0.'),2:i 

-  2,12,86 

-  2,02,10 


-14,06,33 
+  4,  .52, 10 


-10,14,23 


Average. 


-1,74,79 
+  13,87 
+  1,52,31 
+  23,97 
-1,13,84 
-1,.51,84 

-  37,30 

-  9(i,.56 
-2,47,74 
-2, 19.  .52 
-1,77.68 
+     64,78 


-9,80,53 


+4,37,40 


-5,43,14 


-  Loss. 


496  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

22.  In  anticipation  of  the  heavy  demands  certain  to  arise  as  the 
result  of  exceptionally  good  crop  prospects,  we  had  already  in  the 
month  of  October  commenced  the  purchase  of  silver  and  the  coinage 
of  rupees,  and  when  the  crisis  came  we  had  considerable  stocks  of 
bullion  lioth  in  the  mints  and  in  course  of  delivery  from  England, 
while  further  parcels  were  under  orders.  I  think  that  it  is  not 
sufficiently  recognized  by  the  banking  and  commercial  community 
that  a  low  stock  of  rupees  in  the  currency'  reserve,  which  might  give 
some  reasonable  cause  for  apprehension  in  the  absence  of  preparations 
for  a  rapid  increase  should  necessity  arise,  is  not  an  indication  of 
danger  when  such  preparations  have  been  made  as  on  the  present 
occasion.  Danger  point  Avhen  there  has  been  no  provision  and  no 
preparation  is  not  danger  point  when  all  due  precautions  have  been 
taken  to  meet  a  strain. 

23.  In  connection  with  the  large  coinage  during  the  last  few  months 
I  think  I  should  take  this  opportunity  of  expressing  my  warm  appre- 
ciation of  the  manner  in  Avhich  the  mint  masters,  and  all  those  respon- 
sible for  the  conduct  of  minting  operations,  have  worked  to  satisfy 
public  requirements  and  to  maintain  the  high  reputation  of  the  mint 
staff.  Work  at  the  mints  is  conducted  under  many  difficulties,  owing 
to  the  fact  that  when  coinage  o])erations  were  resumed  some  four 
years  ago,  after  a  long  period  of  comparative  idleness,  the  machinery 
and  appliances  were  found  to  be  in  many  respects  inadequate  and 
unsuitable  to  meet  the  strain  of  very  much  work.  Proposals  have  been 
under  consideration  for  the  establishment  of  a  combined  mint  with 
new  machinery,  and  with  all  the  latest  improvements,  but  various 
objections  have  been  raised  to  the  scheme,  and  meanwhile  the  mint 
staff  are  to  be  congratulated  on  their  success  in  coping  with  the  diffi- 
culties arising  from  the  imperfections  of  existing  arrangements. 

24:.  Large  as  was  the  sale  of  council  drafts  during  the  year  1902-3 
the  amount  has  ])een  very  greatly  exceeded  during  the  current  year. 
It  has  already  reached  £22,.592,900 ;  and  it  is  estimated  that  it  will 
attain  the  altogether  phenomenal  figure  of  £23,700,000;  and  in  addi- 
tion to  this  quite  abnormally  large  sale  of  council  bills  the  imports  of 
gold  up  to  the  end  of  February  reached  a  figure  approximating  12 
millions  sterling. 

The  secretary  of  state,  by  his  drawings,  and  the  government  of 
India,  by  measures  taken  locally,  have  clone  all  in  their  power  to  meet 
the  demands  of  trade.  The  question  of  how  this  should  best  be  done 
has  been,  and  is  likely  still  further  to  be,  a  matter  for  some  discussion ; 
here  I  would  only  say  that  I  adhere  to  my  opinion  that  it  is  impossible 
to  admit  the  direct  responsibility  of  government  to  immediately  and 
in  all  circumstances  meet  abnormal  demands.  Government  has  every 
right  to  expect  that  those  who  make  it  their  special  business  and 
derive  a  profit  from  fiiuincing  the  trade  of  the  country  will  consider 
beforehand  what  are  likely  to  be  their  requirements,  and  make  due 
preparation  to  meet  the  wants  of  their  customers.  We,  on  our  side, 
will  do  all  we  can,  and  it  is  our  intention,  in  view  of  a  probably  per- 
manent increase  in  demands  for  rupees  during  the  winter  season,  to 
increase  the  standard  of  the  stock  of  silver  coin  which  it  has  hitherto 
been  considered  sufficient  to  hold  in  the  currency  reserve  at  the  begin- 
ning of  October,  and  further,  to  take  permanent  measures  to  enable  a 
rapi<l  addition  to  l)e  made  to  that  stock  without  the  risk  of  delay  in 
importing  silver  bullion  for  coinage. 


GOLD    STANDARD    IN    INTEBNATIUNAL    TliAUK.  4'J7 

As  regards  the  events  of  the  last  few  moiitlis  I  may  ])oint  out  that 
rj)iiii()iis  in  the  most  competent  tinancial  cireU^s  in  India  were  by  no 
means  nnanimous  in  anticipating'  the  great  demand  for  coin  which 
arose.  As  hite  as  December  15  none  of  the  presidency  banks  had  fonnd 
it  necessary  to  raise  their  rate  above  -t  per  cent,  and  tliis  rate  is  i)ri- 
maril}'  dependent  on  the  rates  at  Avhich  money  is  being  offered  in  the 
o[)en  market;  by  January  5  all  the  presidency  banks  had,  however, 
been  obliged  to  raise  rates  to  (>  per  cent.  This  very  rapid  rise  does 
not  appear  from  the  figures  before  us  to  have  been  in  any  way  due  to 
low  balances  held  by  the  i)resi(lency  banks  at  the  beginning  of  the 
2)eriod  of  pressure.  It  was  caused  by  the  extraordinary  trade 
demands  which  the  presidency  banks  alone  appear  to  have  been  in  a 
position  to  satisfy,  and  I  have  not  heard  of  any  case  in  which  accom- 
modation was  refused  to  regular  customers  when  good  security  was 
forthcoming.  Similarly,  Government  showed  no  hesitation  through- 
out the  crisis  in  exchanging  gold  and  notes  for  rupees  when 
demanded.  I  must  insist  on  the  fact  that  the  currency  reserve  is 
maintained  for  the  purpose  of  securing  the  stability  of  the  note  circu- 
lation and  exchanging  so\'ereigns,  and  as  long  as  all  obligations  in 
this  respect  are  fulfilled  the  public  have  no  claim  to  further  assistance 
from  its  resources, 

25.  During  the  vear  the  gold  reserve  fund  has  increased  from 
£;5,810,T?>0  to  £G,382,200,  of  which  amount  £0,376,500  are  invested  in 
consols,  the  national  war  loan,  and  local  loans  stocks.  In  addition  to 
these  resources  the  last  returns  show  a  sum  of  £10,494,556  held  in  gold 
in  the  currency  reserve. 

•_!<).  Our  exchange  operations,  as  indicated  by  the  rates  obtained 
for  council  bills,  have  naturally  been  very  favorable  during  the  clos- 
ing year.  The  estimated  average  exchange  rate  for  the  rupee  for 
1903-4  is  16.053d.  as  compared  with  the  rates  noted  below  for  the  four 
preceding  years : 

Pence. 

1899-1900 16.  007 

1900-1901 -^ 15.  973 

1901-2 15.  9S7 

1902-3 IG.  002 

1903-4    (estimated) 16,053 

5.  STABILITY  IN  PRICE  OF  SILVER. 

[Letter  from  chairman  of  English  commission.] 

9  Throgmorton  Avenue, 

London,  E.  (7.,  Octoler  ^,  100 J^. 
Dear  Mr,  Hanna:  "With  reference  to  your  letter  of  July  16.  I 
have  now  the  pleasure  to  send  you  a  statement  showing  the  purchases 
of  silver  made  by  the  government  of  India  since  March  6,  1900,  which 
I  hope  will  give  you  the  information  which  you  desire  to  have.  I 
think  you  will  observe  from  the  prices  which  the  secretary  of  state  for 
India  paid  for  the  silver  which  he  bought  that  regularity  has,  as  far 
as  possible,  been  observed,  so  as  to  prevent  extreme  fluctuations. 

Considering  that  the  value  of  the^ silver  bought  by  the  secretary  of 
state  since  ]SIarch  6,  1900,  up  to  the  end  of  Sei)tember,  1904.  has 
amounted  to  12  millions  sterling,  the  variation  in  prices  has,  I  think 
you  will  see,  been  extremely  small. 
S.  Doc.  128,  58-3 32 


498 


GOLD  STANDARD  IN  INTERNATIONAL  TRADE. 


I  should  nu'iitiou  that  the  figures  given  rogfirding  the  first  and 
second  purchase  differ  slightly  from  those  jiublished  on  page  350 
in  the  report  of  the  Commission  on  International  PLxchange,  which 
included  not  only  the  bank's  charges,  as  stated  in  the  report,  but  also 
freight  and  charges  incurred  in  carriage  to  India  and  brokerage  in 
London.  The  figures  given  in  the  memorandum  sent  herewith  repre- 
sent in  all  cases  only  the  sums  paid  by  the  bullion  brokers  for  the 
silver. 

With  kind  regards,  I  am,  yours  sincerely, 

Jas.  L.  MacKay. 
H.  H.  H-ANNA,  Esq.,  Chairman,, 

GomTnission  on  Internatiorial  Exchange  of  the 

United  States  of  America^  Indianapolis^  Ind.^  U.S.A. 


SILVER  rURCHASED  IN  LONDON  FOR  THE  GOVERNMENT  OF  INDIA. 

First  purchase. — 50,297,224  ounces  of  silver  were  purchased  be- 
tween March  6,  1900,  and  March  20,  1901,  at  a  cost  exclusive  of 
charges  made  by  the  Bank  of  England  and  of  brokerage  and  minor 
charges,  of  £6,002,816.12.1,  i.  e.,  28|id.  per  ounce. 

The  average  price  per  ounce  of  each  installment  was  as  follow^s: 


Installment. 

Date  of  purchase. 

Sterling  value  of 
silver. 

Number  of 
ounces. 

Average 

price  per 

ounce. 

First  

Mar.6toMar.24,1900 

£         s.     d. 
.5(X),189    11      3 
500,222      7      5 
5(X),034      6      9 
400,098      8      8 
500, 296      5      0 
5(X),216      5      4 
5(X),223      1      2 
5(X1,245    11    11 
.500,218    11      2 
5(K),158    12      4 
500,269    11      4 
600,643    19      9 

4,348,001 
4,360,345 
4,.S47,9U 
3,45(i,628 
4,160,Mi3 
4,067,293 
3,983,953 
4,028,510 
4,a59,913 
4,125,234 
4,247,677 
5,110,873 

Pence. 

27SI 
27U 

Second 

Apr. 23  to  May  4, 1900... 

Third 

May  14  to  May  28, 190(J 

27i| 

Fourth 

Fifth 

June  12  to  June  22. 1900 

Sept.  5  to  Sept.  17, 1900 

27?| 
28|l 

Sixth 

Sept.  27  to  Oct.  8, 1900 

29iJ 

Seventh. - 

Oct.  20  to  Oct.  25, 19(X) 

30| 

Eighth 

Ninth 

Nov.  28  to  Dec.  7, 1900 

Dec.  19  19(X1,  to  Jan.  4, 1901 

29ii 

29g\ 

Tenth 

Eleventh 

Twelfth 

Jan.8,  to  Jan.28,1901 

Jan. 29  to  Peb.22,1901 

Feb.  26  to  Mar.  20, 1901 

293\ 

28^ 

Total. 

6,002,816    12      1 

50,297,224 

2SU 

22 11 


Second  purchase. — 3,188,890  ounces  were  purchased  between  Feb- 
ruary 28  and  March  13,  1903,  at  a  cost,  exclusive  of  the  bank's 
charges  and  of  brokerage  and  minor  charges,  of  £300,315.1.3,  i.  e., 
d.  per  ounce. 

Third  purchase. — 35,652,935  ounces  were  purchased  between  Sep- 
tember 15,  1903,  and  February  20,  1904,  at  a  cost,  exclusive  of  the 
bank's  charges  and  of  brokerage  and  minor  charges,of  £4,000,788.11.9, 
i.  e,,  20||d.  per  ounce. 

The  average  price  per  ounce  of  each  installment  was  as  follows : 


Installment. 

Date  of  purchase. 

Sterling  value  of 
silver. 

Number  of 
ounces. 

Value 

per 
ounce. 

First 

Sept.  15  to  Oct.  2. 1903 

()ct.9to()ct.26, 1903 

Nov. 12  to  Nov. 24, 1903 

Dec.  12  to  Dec.  19, 1!I03 

Doc.21,190:^,to.Tan.4,liK)4 

£         s.  d. 
500,109    14    9 
500,087      6    6 
500,122    16    8 
.5(X),109      6    9 
5(XI,093    15    5 
5(X),116      8    7 
500,094    11  11 
500,054    11    2 

4,406,654 
4,262,018 
4,431,780 
4,667,608 
4,():JO,610 
4, 475, 0(H) 
4,4(K),348 
4,382,908 

Pence. 

37M 
28,Sj 

Second 

Third 

27b\ 

Fourth 

2.5Si 

mi 

26if 
37JI 

27J 

Fifth 

Sixth 

Jan.5to  Jan.  11,1904 

Seventh 

Jan.ll  t/)  Jan.  l6,KHt4 

Eighth 

Feb.  15  to  Feb.  20,  liXM 

Total 

1,000,788    11    9 

35,652,935 

2611 

(a-LU    HTANDAKU    IN    INTEKN ATIUNAL    TKADK. 


499 


Fonrth  piirchafie. — 18,;^00,r)44  ounces  have  been  purchased  between 
May  -1  and  Au<i-ust  27  at  a  cost,  exchisive  of  the  bank's  charge  and 
of  brokera<!:e  and  minor  eharfjes,  of  £"2,000,407.18.10. 

The  average  price  per  ounce  of  each  inhtallnient  has  been  as  follows: 


Installment. 

Date  of  purchase. 

Stt^rling  value  of 
.silver. 

Number  of 
ounces. 

Value 

per 
ounce. 

First 

May  2to  May20,1904 

£  s.  d. 
500,220  2  5 
.501),  062  2  10 
499,982  8  8 
500, 142  19  11 

4,685,849 
4,  .594, 01  ti 
4,.52;^,iH7 
4,49(5,884 

Pence. 
25gJ 

May  a")  to.Tuly4,liHM_ 

26t 

Third           

July  4  to  July  20,1904 

July  28  to  Aug.  27, 1904- 

2^53? 

Fourth 

2liil 

Total 

2,000,407  13  10 

18,300,644 

■     26M 

6.  PIXLEY  &  ABELL'S  ANNUAL  CIRCULAR,  1904. 

Gold. — Excepting  during  June,  July,  and  August,  the  continental 
demand  prevented  any  purchases  of  bar:*  l)v  the  Bank  of  England. 

Early  in  the  year  Paris  bought  largely  and  continued  to  do  so  until 
eTune.  Our  own  market  not  being  able  to  satisfy  requirements,  con- 
siderable shipments  A\ere  made  from  New  York  direct.  In  August 
Berlin  became  a  keen  buyer,  j^resumably  on  Russian  account,  and  at 
one  time  as  much  as  78s.  ;^d.  was  freely  paid.  Sovereigns  were  also 
taken  from  the  bank,  as  it  paid  to  take  them  at  these  rates.  This 
demand  for  gold  continued  until  the  end  of  the  year. 

Egypt  in  the  latter  part  of  the  year  was  a  heavy  importer  of  sover- 
eigns, and,  in  addition,  part  of  the  coin  shipped  from  Bombay  was 
stopped  there  en  route  to  London. 

The  South  African  production  showed  a  steady  increase  and  gave 
a  total  for  the  vear  of  £10,000,000,  as  compared  with  £13,800,000  last 
year  and  £15,800,000  in  1808,  the  best  total  previously. 

The  India  council  shipped  heav}^  sums  to  London,  part  of  which 
was  allocated  to  the  purchase  of  silver,  and  tlie  large  increase  in 
the  export  figures  to  England  may  be  attributed  to  this  cause. 

"West  Africa  showed  a  further  advance,  but  not  nearly  in  the  same 
proportion  as  the  previous  year. 

Heavy  sums  w^ere  sent  repeatedly  to  the  Argentine  Republic,  par- 
ticularly during  the  last  few  months. 

The  bank  rate  stood  at  4  per  cent  on  January  1,  and  was  lowered  to 
3^  per  cent  on  April  14  and  to  3  per  cent  on  April  21.  It  remained 
at  this  for  the  rest  of  the  year,  giving  an  average  of  3.2i)()  per  cent. 

Silver. — The  predominating  feature  of  the  year  has  again  been  the 
large  purchases  made  on  behalf  of  the  Indian  government.  These 
carried  the  price  early  in  the  year  to  over  27d.,  and  when  these  orders 
temporarily  ceased  the  price  did  not  greath^  fall,  as  cash  silver  re- 
mained scarce,  owing  to  covering  orders  by  "  shorts."  Some  anxiety 
was  caused  by  the  partial  failure  of  the  monsoon,  especially  in  Guje- 
rat.  but  later  this  was  removed,  and  it  soon  became  evident  that 
Indian  trade  would  require  more  silver  currency  than  the  stock  pos- 
sessed by  the  government.  Eairly  good  bazar  orders,  interspersed 
with  French  mint  tenders  totaling  Y7,500  kilograms,  ue\er  allowed  the 
market  to  f;d'  lower  than  24j\d.  (in  April),  and  the  price  quickly 
recovered  to  20d.     In  August  the  Indian  government  orders  recoiu- 


500  GOLD    STANDAED    IN    INTERNATIONAL    TRADE. 

menced,  and,  with  occasional  pauses,  these  continued  to  the  end  of  the 
year. 

Sales  by  China  had  at  tunes  a  somewhat  flattening  effect,  but  this 
was  more  than  «:'oinpensated  for  by  the  falling  off  of  the  American 
supply,  owing  to  the  requirements  for  the  new  Panama  coinage, 
which  absorbed  about  1,500,000  ounces.  The  forward  price,  under 
pressure  of  bear  sales,  showed  a  wide  difference  early  in  the  year, 
Ijut  closed  up  to  within  a  fraction  of  cash  in  April.  In  September 
renewed  forward  sales  again  caused  the  dift'erence  to  widen,  and 
from  then  tliis  averaged  about  |d.  till  the  close  of  the  year. 

In  November  the  Mexican  Congress  passed  a  bill  closing  the  mints 
to  the  free  coinage  of  silver,  with  a  view  to  gradually  raising  the  value 
of  the  Mexican  dollar  to  half  that  of  the  United  States  dollar.  So 
far  this  measure  has  had  no  influence  on  the  price  of  silver. 

The  Avar  in  the  Far  East  has  led  to  a  large  demand  for  silver,  both 
in  Shanghai,  where  considerable  purchases  have  been  made,  and  also 
in  San  P'rancisco  for  Mexican  dollars. 

The  Spanish  Government  toward  the  close  of  the  year  sold  17,500 
kilograms  of  surplus  silver. 

Tlie  average  price  for  the  year  is  26fd. 

Mexican  dollars. — Large  amounts  continued  to  be  shipped  here 
from  the  Straits,  but  ceased  before  the  end  of  January.  Further 
importations  of  the  coin  into  Manila  were  stopped  on  January  14. 
Japan  bought  large  quantities  in  San  Francisco,  but,  as  a  rule,  the 
quotation  hero  remained  more  or  less  nominal  until  October,  when 
further  shipments  were  made  from  China  to  London. 

On  the  announcement  of  the  passing  of  a  bill  in  Mexico  placing 
the  dollar  on  a  fixed  basis,  the  price  rose  to  27d.,  and  all  the  dollars 
that  were  available  here  Avere  at  once  shipped  to  Mexico  to  take 
advantage  of  the  premium  obtainable  over  their  intrinsic  value. 
From  January  1,  1905,  an  import  duty  of  10  Mexican  dollars  per 
kilogram  has  been  placed  on  all  dollars  sent  into  the  country.  It  is 
proposed  by  the  Mexican  GoATrnment  to  coin  the  dollars  of  the  same 
weight  and  fineness  as  before,  and,  further,  to  coin  dollars  for  export 
as  required. 

PixLEY  &  Abell,  Bullion  Brokers, 

London,  December  31^  lOOJf. 


Appendix  G. 
STATISTICAL  DATA. 


Prnduction  of  gold  and  fillver  in  the  imrld  since  the  discovery  of  America. 

[From  1493  to  1885  is  from  a  table  of  averages  for  certain  periods,  fomx)ilc(l  by  Dr.  Adolph  Soetbeer. 
For  the  year  1886  and  since  the  production  is  the  annual  estimate  of  tlie  Bureau  of  the  Mint.] 


1493-1520 . 
1521-1544  . 
1545-1560  . 
1561-1580  . 
1581-1600  . 
1001-1620  . 
1621-1640  . 
1641-1660  . 
1661-1680  . 
1681-1700  . 
1701-1720  . 
1721-1740  . 
1741-1760. 
1761-1780. 
17S1-1S00. 
1801-1810. 
1811-1820  . 
1821-1830  . 
1831-1840  . 
1841-1850  . 
1851-1856  . 
1856-1860  . 
1861-1865  . 
1866-1870  . 
1871-1875  . 
1876-1880  . 
1881-1885  . 
1886-1890  . 
1891-1895  . 

1896 

1897 

1898 

1899 

1900 

1901 

1902 

1903 


Total. 


Period. 


Gold. 


Average  annual  for  period. 


Fine  ounces. 


186,470 

230, 194 

273, 5% 

219, 906 

237, 267 

273,918 

266, 845 

281, 965 

297, 709 

346, 096 

412, 163 

613, 422 

791, 211 

665, 666 

571, 948 

571, 563 

367, 957 

467, 044 

652, 291 

1,760,502 

6,410,324 

6, 486, 262 

5,949,582 

6, 270, 086 

5, 591, 014 

5, 543, 110 

4, 794, 755 

5,461,282 

7, 882, 565 

9, 783, 914 

11,420,068 

13, 877, 806 

14, 837, 775 

12, 316, 135 

12, 625, 527 

14,321,360 

15,747,378 


Value. 


83,855.000 

4,759,000 

5, 666, 000 

4, 546, 000 

4,905,000 

5, 662, 000 

5, 516, 000 

5, 828, 000 

6, 1.64. 000 

7, 1,54, 000 

8, 520, 000 

12,681,000 

16, 356, 000 

13,761,000 

11,823,000 

11,81.5,000 

7,606,000 

9, 448, 000 

13,484,000 

36, 393, 000 

132, 513, 000 

134, 083, 000 

122, 989, 000 

129, 614, 000 

11.5,677,000 

114, 686, 000 

99,116,000 

112, 895, 000 

162, 947, 000 

202,261,600 

236, 073, 700 

286, 879, 700 

306, 724, 100 

254,576,300 

260, 992, 900 

296,048,800 

325, 527, 200 


Total  for  period. 


Fine  ounces. 


5 

221, 

6 

.524, 

4 

377, 

4 

398, 

4 

745, 

5 

478, 

6 

336, 

5 

639, 

5 

9.54, 

6 

921, 

8 

243, 

12 

268, 

15 

824, 

13 

313, 

11 

438, 

5 

715, 

3 

679, 

4 

570, 

(i 

622, 

17 

605, 

32 

0.51, 

32 

431, 

29 

747, 

31 

3.50, 

27 

955, 

27 

715, 

23 

973, 

27 

306, 

39 

412, 

9 

783, 

11 

420, 

13 

877, 

14 

837, 

12 

315, 

12 

626, 

14 

321, 

15 

747, 

,160 
,656 
,544 
,120 
,340 
,360 
,900 
,110 
,180 
,895 
,  260 
,440 
,230 
,315 
,970 
,627 
,568 
,444 
,913 
,018 
,621 
,312 
,913 
,430 
,068 
,650 
,773 
,411 
,823 
,914 
,068 
,806 
,776 
,136 
■,  527 
,360 
,378 


529, 652, 914 


Value. 


8107,931,000 
114,206,000 
90, 492, 000 
90, 917, 000 
98, 095, 000 
113,248,000 
110,324,000 
116,  .571, 000 
123,084,000 
143,088,000 
170,  403, 000 
253,611,000 
327, 116, 000 
276,211,000 
236,464,000 
118,1,52,000 
76,063,000 
94, 479, 000 
134,841,000 
363, 928, 000 
662, 566, 000 
670, 415, 000 
014,944,000 
648,071,000 
577, 883, 000 
572,931,000 
496, 582, 000 
564,474,000 
814,736,000 
202,251,600 
236, 073, 700 
286, 879, 700 
306, 724, 100 
264,  .576, 300 
260, 992, 900 
296, 048, 800 
326,627,200 


10, 948, 899, 300 


Silver. 

Period. 

Annual  average  for  period. 

Total  for  period. 

Fine  ounces. 

Coining 
value. 

Fine  ounces. 

Coining  value. 

1493-1520  

1,511,050 
2, 899, 930 
10, 017, 940 
9,628,925 
13,467,635 
13,596,235 
12,654,240 
11,776,545 
10,834,660 
10,992,085 
11,432,540 

81,954,000 
3, 740, 000 
12,9.52,000 
12, 4.50, 000 
17,413,000 
17, 679, 000 
10, 361 ,  000 
15,226,000 
14,008,000 
14,212,000 
14,781,000 

42, 309, 400 
09, 698, 320 
160, 287, 040 
192,  678,  ,500 
269,  352,  700 
271,924,700 
2.53, 081,. SOO 
2:i5, 530,  9(H) 
216,691,000 
219,841,700 
228, 650, 800 

854,703,000 

1.521-1.544 

89,  986, 000 

1,54.5-1660 

207  240  000 

1.561-1680 

248, 990,  000 

1,581-1600 

348.2.54,000 

1601-1620  

351 , 579,  000 

1621-1640 

1(;41-1660 

1661-1680  

327.221,000 
304,  .525,  000 
280, 106,  0(K) 

1681-1700  

1701-1720  

284,240,000 
295,629,000 

501 


502 


GOLD   STAKDARD    IN    INTERNATIONAL    TRADE. 


Production  of  gold  mid  silver  in  the  world,  etc. — Continued. 


Silver. 

Period. 

Annual  average  for 
period. 

Total  for  period. 

Fine  ounces. 

Coining 
value. 

Fine  ounces. 

Coining 
value. 

17''1  1740      

13, 863, 080 
17,140,612 
20,985,591 
28,261,779 
28, 746, 922 
17, 385, 755 
14,807,004 
19, 175, 867 
25,090,342 
28, 488, 597 
29,095,428 
35,401,972 
43,051,583 
63, 317, 014 
78, 775, 602 
92, 003, 944 
108.911,431 
157,581,331 
157,061,370 
160,421,082 
169, 055, 253 
168, 337, 453 
173,591,364 
173,011,283 
161,334,339 
170, 443,  670 

$17,924,000 
22, 162, 000 
27,133,000 
36,540,000 
37,168,000 
22,479,000 
19,144,000 
24,793,000 
32, 440, 000 
36, 824, 000 
37,618,000 
45,772,000 
65,663,000 
81,864,000 
101,851,000 
118,955,000 
140, 815, 000 
203, 742, OUO 
203,069,200 
207,413,000 
218,576,800 
217, 648, 200 
224,441,200 
223,691,300 
208,594,000 
220,371,600 

277,261,600 
342,812,235 
419,711,820 
565,235,580 
287,469,225 
173,857,555 
148, 070, 040 
191,758,675 
250, 903, 422 
142,442,986 
145,477,142 
177,009,862 
215,257,914 
316,585,069 
393, 878, 009 
460,019,722 
544, 557, 165 
787, 906, 656 
157,061,370 
160,421,082 
169, 055, 253 
168, 337, 453 
173,591,364 
173,011,283 
161,334,339 
170,443,670 

$358,480,000 

17411760         

443,232,000 

1761  1780                                   

542,658,000 

1781  1800                       

730,810,000 

18011810            

371,677,000 

1811-1820  

224,780,000 

1821  1830                  

191,444,000 

1831  1840      

247,930,000 

1841  1850                        

324,400,000 

1851  1855                    

184,169,000 

1856  1860                                    

188,092,000 

1861  1865                    

228,861,000 

1866  1870           

278, 313, 000 

18711875                  

409, 322, 000 

1876  1880                      

509,256,000 

1881  1885         

594,773,000 

1886  1890                           

704,074,000 

1891  1895                      

1,018,708,000 

1896                        

203, 069, 200 

1897  .     .           

207, 413, 000 

1898                             

218, 576, 800 

1899                          

217, 648, 200 

1900               

224,441,200 

223,691,300 

1902                    

208,594,000 

1903           

220,371,600 

9,333,320,341 

12,067,323,300 

Percentage  of  production. 

Period. 

By  weight. 

By  value. 

Gold. 

Silver. 

Gold. 

Silver. 

1493  1520                        

11 
7.4 
2.7 
2.2 
1.7 
2 

2.1 
2.3 
2.7 
3.1 
3.5 
4.2 
4.4 
3.1 
2 

1.9 
2.1 
3 

3.3 
6.6 
18.4 
18.2 
14.4 
12.7 
8.1 
6.6 
5 

4.8 
4.8 
5.9 
6.7 
7.6 
8.1 
6.6 
0.8 
8.2 
8.5 

89 

92.6 

97.3 

97.8 

98.3 

98 

97.9 

97.7 

97.3 

96.9 

96.5 

95.8 

95.6 

96.9 

98 

98.1 

97.9 

97 

96.7 

93.4 

81.6 

81.8 

85.6 

87.3 

91.9 

93.4 

95 

95.2 

95.2 

94.1 

93.3 

92.4 

91.9 

93.4 

93.2 

91.8 

91.5 

66.4 

55.9 

30.4 

26.7 

22 

24.4 

25.2 

27.7 

30.5 

33.5 

36.6 

41.4 

42.5 

33.7 

24.4 

24.1 

25.3 

33 

35.2 

52.9 

78.3 

78.1 

72.9 

70 

58.5 

53 

45.5 

44.5 

44.4 

49.9 

53.2 

.56.8 

58.5 

53.2 

52. 7 

58.7 

59.  6 

33.6 

1521  1.544               

44.1 

154.^1560               

69.6 

1561-1580  

73.3 

1581  1600                                 

78 

1601  1620                        

75.6 

1621-1640           

74.8 

1641  1660                                             

72.3 

1661  1680                      

69.5 

1681  J700  .           

66.5 

1701  17'0                                   

63.4 

1721-1740 , 

58.6 

1741  1760 

57.5 

1761  1780                                                     

66.3 

1781  1800                                          

75.6 

1801   1810                         

75.9 

1811   1820            

74.7 

1821-1830  

67 

1881   1840                     

64.8 

1841   18.50.               

47.1 

18511855                                              

21.7 

1856-1860                    

21.9 

1861-1865  

27.1 

1866  1870                                                      

30 

1871-1875                

41.5 

1876  1880  

47 

18811885                           

54.5 

1886-18'K) 

1891-1895       

5,5.5 
5.5.6 

1H96                                                 

50.1 

1H97                          

46.8 

1898 

43.2 

1899                                                                 

41.5 

1900                                 

46.8 

1901 

47.3 

1902                                           

41.3 

1903                        

40.4 

Total          

5.4 

94.6 

47.6 

52.4 

GOLD    STANDARD    IN    INTERNATIONAL    TKADP^. 


503 


World's  prodnct ion  of  gold  and  silver  for  calendar  years  1900,  1901,  1902,  and  1903. 


Country. 


1900. 


Gold. 


Kilo- 
grams 
(fine). 


North  Amerioa: 

I'liited  States... 

Mt.'.\ioo 

Canada 

Africa 

Australasia ;110, 

Europe: 

Russia 

Austria-Hungary 

Germany 

Norway 

Sweden , 

Italy 

Spain 

Portugal ! 

Greeee I 

Turkey  

Finland 

France 

Great  Britain 

South  .\merica: 

Argentina 

Bolivia 

Chile 

Colombia 

Ecuador 

Brazil 

Venezuela 

Guiana  (British)... 

Guiana  (Dutchl  ... 

Guiana  (French) .. 

Peru 

Uruguay 

Central  America 

Asia: 

Japan  

China : 

Korea 

India  (British) 

East  Indies  (Brit- 
ish)   

Eastlndies(Dutch) 


126 
642 
951 
048 
591 

312 
223 
99  ' 


Ounces 
(fine). 


Value. 


Silver. 


Kilo- 
grams 
(fine). 


3,829,897   879,171,000    1,793,395 
435,375    '<  9, 000,000    1,786,887 


Total 


383,049 


1,348,720 

419,  .503 

3, 5.55, 506 

974,537 

103,615 

3, 192 


2,845 

1,704 

418 

83 


675 

84 


13,360 


2, 

fi, 
78, 
57, 

5, 
134, 
15, 
98, 
22, 
76, 
52, 

1, 
24, 


27,880,-500 
8,671,900 
73,498,900 

20. 145, 500 

2,141,900 

66,000 


138, 400 
'415,' 614' 


58,800 

35,200 

8,600 

1,700 


14,000 
1,700 


58,127 
269, 662 
217, 687 
456,444 

27, 643 
21,043 


43, 

119, 
1,627, 
1, 194, 

107, 
2, 775, 

321, 
2, 035, 

463, 

1,.580, 

1,0H5, 

30, 

500, 


1,201,600 

^  5, 574, 400 

4,  ,500, 000 

9, 435,  .500 

571,400 
435, 000 


4, 

61, 

168, 

5> 

1, 

23, 

99, 

c 

31, 

c-4, 

b 

14, 

6, 


1,178 

341,295 

b  129, 503 

57, 994 

240 


226, 973 

25 

31,523 


Ounces 
(line). 


57,647,000 
57, 437, 808 
4, 448, 755 


13, 340, 263 

143,299 

1,988,774 

5,411,441 

172,839 

61,983 

751, 335 

3,18.5,316 

3,790 

1,011,656 

142,111 

7,843 

4.52, 151 

221,673 

37,898 

10,  970, 610 

4,162,718 

1,864,165 

7,734 


7, 295, 825 

800 

1,013,285 


53,809       1,729,603 


2,509 


80, 659 


12,315,135   254,576,300   5,400,418   173,591,364   224,441,200     107,626,400 


Coining 
value. 


;74, 533, 500 
74, 263, 000 
5,751,900 


17,248,000 

185, 300 

2,571,300 

6, 996, 600 

223,. 500 

80,100 

971,400 

4,118,400 

4,900 

1,308,000 

183, 800 

10, 100 

584, 600 

286, 600 

49, 000 

14,184,200 

5, 382, 100 

2, 410, 200 

a  10, 000 


Commer- 
cial value. 


S35,741,100 

35, 61 1 , 400 

2, 758, 200 


8,271,000 

88,800 

1, -2:53, 000 

3, 355, 100 

107,200 

38,400 

465, 800 

1,974,900 

2,300 

627, 200 

88, 100 

4,900 

280, 300 

137,400 

23,600 

6,801,800 

2,  .580, 900 

1,155,800 

4,800 


9,433,000  4,523,400 

1,000  500 

1,310,100  628,200 

2,236,300 


104, 300 


50,000 


Country. 


Gold. 


Kilo- 
grams 
(fine). 


North  America: 

United  States 

Mexico 

Canada , 

Africa 

Australasia , 

Europe: 

Russia 

Austria-Hungary . 

Germany 

Norway 

Sweden  

Italy 

Spain 

Portugal 

Greece 

Turkey 

Finland 

France 

Great  Britain 

South  America: 

Argentina 

Bolivia 


45 
180 


Ounces 
(fine). 


3, 805, 500 
497,. 527 

1,167,210 
439, 704 

3,719,080 

1,105,412 

103,363 

2,893 


2,017 

257 

418 

63 


1,185 
63 


5, 626 


1,451 
5,786 


Value. 


Silver. 


Kilo- 
grams 
(fine). 


Ounces 

(tine). 


"78, 666, 700 
10,284,800 
24, 128,  .500 
9, 089, 500 
76, 8.S0, 200 

22, 850, 900 

2, 136, 700 

59,800 


1,717,706 

1,793,692 

163, 099 


41,700 
5,300 
8,600 
1,300 


24,  .500 
1,300 


116,300 


30,000 
119,600 


318, 256 

4,884 
62, 118 
171,778 

5,161 

1,680 
30, 000 
99, 095 

«119 
35, 902 
13, 352 

a  244 
11,9.54 

6,392 

1,405 
404, 201 


55, 214, 000 
57, 656, 549 
5, 242, 697 


871,387,800 
74,  .545, 900 
6, 778, 400 


10, 230, 046 

156, 993 

1, 996, 706 

5,  .521 ,  648 

165, 902 

.53,  986 

964, 333 

3,1.85,316 

3,790 

1,1.54,046 

429,  l.SO 

7,843 

384, 263 

173,297 

4.5,166 
12,992,695 


Coining 
value. 


13, 226, 700 

203, 000 

2,  .5.81, 600 

7, 139, 100 

214,  .500 

tiO,  .*<00 

1, 246, 800 

4,11H,400 

4,900 

1,492,100 

6.54, 900 

10, 100 

496,  800 

224,100 

.58, 400 
16,798,600 


Commer- 
cial 
value. 


$33,128,400 

34, 593, 900 

3, 145, 600 


6, 138, 000 

94, 200 

1,19,H,000 

3,313,000 

99,  ,500 

32,400 

.578,000 

1,911,200 

2,300 

692, 400 

2,57,. 500 

4,700 

230,600 

104,000 

27,100 
7,79.5,600 


a  Estimate  Bureau  of  the  Mint.        b  Figures  for  1.S99  repeated.  c  Figures  for  1898  repeated. 


504  -GOLD    [STANDARD    IN    INTKllNATIONAL    TRADE. 

World's  product (071  of  gold  aiui  silver,  etc. — Continued. 


1901. 

Country. 

Gold. 

Silver. 

Kilo- 
grams 

(tine). 

Ounces 

•  (fine). 

Value. 

Kilo- 
grams 
(tine). 

Ounces 

(fine). 

Coining 
value. 

Commer- 
cial 
value. 

South  America— Con. 

Chile 

Colombia 

Ecuador 

Brazil 

1,606 
4, 215 

165 
4,176 

483 
2, 666 

610 
3,009 

865 
47 

963 

1,808 
13, 680 

4, 514 
14, 138 

1,296 

51,626 

135, 513 

5, 321 

134, 260 

15,  538 

85,  701 

19,621 

96,750 

27,  825 

1,530 

30, 974 

.58, 127 
439, 801 
145, 125 
454, 527 

41.685 

11,067,200 
2,801,300 

110,000 
2, 775, 400 

321,200 
1,771,600 

405,  600 
2, 000, 000 

575, 200 
31,700 

640, 300 

1,201,600 
9,091,500 
3,000,000 
9,395,900 

861,700 
497, 000 

287,926 

58,537 

a  240 

9,255,130 

1,881,649 

7,734 

Sll,966,200 

2, 432, 800 

10,000 

85,553,100 

1,129,000 

4,600 

Venezuela 

Guiana  (British)  .. 

Guiana  (Dutch)  ... 

Guiana  (French)  .. 

110,965 

('25 

27, 365 

a  53,  809 

3, 566, 868 

800 

879, 666 

1,729,603 

4, 611, 700 

1,000 

1,137,400 

2,236,300 

2,140,100 
500 

Central  America 

Asia: 

.Japan  

527, 800 
1,037,800 

China 

India  (British) 

East  Indies  (Brit- 
ish)   

East  Indies  (Dutch) 

748            24,042 

3,465 

111,377 

144,000 

66,800 

Total 

392,705  1  12.  fi25..'S27 

260,992,900 

5, 382, 369 

173,011,283 

223,691,300 

103,806,700 

Country. 


North  America: 

United  States... 

Mexico 

Canada 

Africa 

Australasia 

Europe: 

Russia 

Austria-Hungary . . 

Germany 

Norway 

Sweden  

Italy  

Spain 

Portugal  

Greece 

Turkey 

Finland 

Franco  

Great  Britain 

South  America: 

Argentina 

Bolivia 

Chile 

Colombia 

Ecuador 

Brazil 

Venezuela 

Guiana  (Briti.ih)  .. 

Guiana  (Dutch)  ... 

Guiana  (French) .. 

I'eru 

Uruguay  

Central  America  .. 
Asia: 

.Japan 

China 

Korea 

India  (British)  

East  Indies  (Brit- 
ish)  

East  Indies( Dutch) 


Gold. 


Kilo- 
grams 
(fine). 


Total 445, 453 


45 
2 
003 
796 
301 
1.59 
(;.53 
721 
484 
642 
500 

87 
,012 

,  936 

,138 
,514 
,428 

,545 
713 


Ounces 
(•fine). 


3,870,000 
491,1.56 
1, 032, 161 
1,887,773 
3, 946, 374 

1, 090, 0.53 

105, 037 

3,023 

97 

3, 023 

257 

494 

63 


1,480 
63 


3,737 
1,451 


32, 

122, 

9, 

101, 

20, 

87, 

1-^1, 

117, 

112, 

2, 

96, 


Value. 


180, 000, 000 
10,153,100 
21,336,700 
39,023,700 

81, 578, 800 

22, 533, 400 
2,171,300 
62, 500 
2, 000 
62, 500 
5, 300 
10, 200 
1,300 


30,  600 
1,300 


77, 300 


62, 259 
422, 401 
14.5,125 
463,  824 

49, 686 
22, 930 


30, 

1, 

666, 

2,  .522, 

200, 

2, 099, 

4:w, 

1,80S, 

322, 

2,  420, 

2, 326, 

2,obii 


Silver. 


Kilo- 
grams 

(fine). 


1,720,603 

1, 872, 091 

131,387 


249, 690 

4,937 

58, 523 

178, 032 

6, 422 

1,439 

30, 000 

115,113 

lis 

33, 044 

14,949 

269 

23, 250 

4,551 

1,174 

279, 044 

54, 047 

55, 269 

240 


58 


Ounces 

(tine). 


55, 500, 000 
60, 176, 604 
4,  223, 304 


8, 026, 037 

158, 679 

1,881,132 

5,  722, 641 

206,413 

46,  226 

964, 339 

3,700,189 

3,773 

1,062,177 

480,  566 

8, 679 

747, 3.59 

146, 289 

37, 720 

8, 969, 596 

1 , 737, 300 

1,776,604 

7,730 


1,887 


1, 287,030 
8, 731 , 800 
3, 000, 000 
9, 588, 100 

1,027,100 
471,000 


132, 668 

24 

30,217 

12,1,51 


3,793 


14,321,360   296,04.8,800   5,019,103 


4, 264, 528 

755 

971,320 

390, 567 


121,919 


161,334,339 


Coining 
value. 


F71,757,600 
77, 804, 100 
5, 460, 400 


10, 377, 100 

205, 200 

2, 432, 200 

7, 399, 000 

266, 900 

59, 800 

1 , 246, 800 

4,784,100 

4, 900 

1,373,300 

021,300 

11,200 

966, 300 

189,200 

48, 800 
11,597,100 
2, 246, 200 
2, 297, 000 

10, 000 


2,400 


6,513,700 

1,000 

1,2.55,800 


Commer- 
cial 
value. 


829, 415, 000 

31,893,600 

2, 238, 300 


4, 253, 800 

84, 100 

997,000 

3, 033, 000 

109, 400 

24,  .500 

.511,100 

1,961,100 

2,  OtK) 

.563,000 

254,700 

4,600 

396,100 

77, 500 

20, 000 

4, 753, 900 

920,  8110 

941,600 

4, 100 


1,(10(1 


2,260,2(10 

400 

514,. M)() 

207,01.0 


1.57,  600 


208,  ,594, 000 


61,(00 
.s.'>..507,20i( 


GOLD    STANDARD    TN    INTERNATIONAL    TRADE.  505 

World's  production  of  gold  and  silver,  etc. — Continued. 


1903. 

Conntrj-. 

Gold. 

Silver. 

Kilo- 
grams 
(fine). 

Ounces 
(fine). 

Value. 

Kilo- 
grams 
(fine). 

Ounces 
(fine). 

Coining    |  Commer- 
value.       cial  value. 

North  America: 

rniti'd  Stiites 

110,731 
16,066 
28,  340 
102,314 
134,231 

37,063 

3,378 

106 

4 

51 

40 

8 

2 

3,560,000 

516, 524 

911,118 

3, 289, 409 

4,315,538 

1,191,582 

108, 609 

3,412 

129 

1,640 

1,291 

262 

63 

873,591,700 
10,677,500 
18,S:?4,500 
67,998,100 
89, 210, 100 

24,632,200 
2,245,100 
70,500 
2, 700 
33, 900 
26, 700 
5,400- 
1,300 

1,689,270 
2,193,249 

97, 984 

10, 077 

301,233 

4,724 
.50, 524 
181,136 
6, 158 
1,061 
25, 085 
127,267 

54,300,000 
70,499,942 

3,149,591 
343,214 

9, 682, 856 

151,835 
1,624,048 
5,822,4.52 

197,928 
34,117 

806,335 
4,090,876 

570,206,000 

91,151,400 

4,072,200 

443, 800 

12, 519,  :^oo 

196,  .300 
2,099,800 
7,-528,000 

2.55, 900 

44,100 

1,042,500 

5, 289, 200 

829,322.000 

38,070,000 

1  700  800 

Ciinada 

A  f  rioa 

185  300 

Australasia- 

5,228,700 
S<>  000 

Kiir(ii>e: 

Russia 

Austria -Hungary . . 
Germany .  . 

877, 000 
3  144  100 

106, 900 
18  400 

Italy  .. 

435, 400 
2,209,100 

Spain 

Portugal 

Greece  

33, 044 

14, 274 

299 

23,250 

4,551 

2,880 

279, 044 

80, 804 

35,117 

1,062,177 

458,830 

9,618 

747,359 

146,289 

92,  .592 
8,969,596 
2,597,355 
1, 128, 799 

1,373,300 

593,200 

12,400 

966.300 

189,200 

119,700 

11,597,100 

3, 3.58, 200 

1,4.59,500 

573,600 

247, 800 

5,200 

403,600 

79,000 

.50  000 

Turkey 

Finland 

31 
3 

999 
96 

20, 700 
2,000 

France 

Great  Britain 

South  America: 

Argentina 

116 
45 

3,737 
1    451 

77,300 

30,000 

1,000 

666, 900 

2,724,400 

274,400 

2, 274, 200 

84,  .500 

1,611,300 

375, 900 

2, 101,. 500 

592, 600 

51, 500 

1,875,300 

2,002,700 
7,:i24,700 
3, 000, 000 
11,428,900 

1,176,200 
501,500 

2                    '    48 

4,843,000 
1  402  600 

Chile 

1,004 
4,100 

413 
3,422 

127 
2,424 

566 
3, 162 

892 

77 

2,822 

3,013 
11 . 021 

32, 262 
131,795 

13, 272 
110,016 

4,087 

77, 948 

18,183 

101,658 

28, 669 

2,491 
90,716 

56,881 
354,334 
145,125 
552,873 

56,899 
24,261 

Colombia 

609  500 

Ecuador 

Brazil 

Venezuela 

Guiana  (British)  .. 

Guiana  (Dutch)... 

Guiana  (French).. 

Peru 

.54, 339 

1,746,674 

2, 2.58, 300 

943  200 

Uruguay  

Central  America 

Asia: 

Japan  

65,831 
16, 875 

2, 116, 063 
.542, 428 

2,735,900 
701,300 

1,142,700 
292,  900 

China 

Korea 4, 514 

!   

India  (British)  .... 

17,197 

1,770 
755 

East  Indies  (Brit- 
ish)  

Esst  Indies(Dutch) 

3,817 

122,696 

158, 700 

66,200 

Total 

489,810 

15,747,378 

325,527,200 

5, 302, 493 

170, 443, 670 

220,371,600 

92, 039, 600 

506 


GOLD    STANDARD    IN    INTERNATIONAL   TRADE. 


Highest,  lowest,  and  averar/e  price  of  bar  silvtr  in  London,  per  ounce  British  standard 
{0.935),  since  1833,  and  the  equivalent  in  United  Stales  gold  coin  of  an  ounce  1,000  fine, 
taken  at  the  average  price. 


Calendar 
years. 


1833 
1834 
1835 
1836 
1837 
1838 
1839 
1840 
1841 
1842, 
1843 
1844, 
1845, 
1846, 
1847, 
1848, 
1849. 
1850, 
1851. 
1852, 
1853. 
1854. 
1855. 
1856. 
1857. 
1858. 
1859. 
1860. 
1861. 
1862. 
1863. 
1864. 
1865. 
1866. 
1867. 
1868. 


Highest 

Lowest 

Aver- 

quota- 
tion. 

quota- 
tion. 

q  nota- 
tion. 

d. 

d. 

d. 

591 

m 

59^5 

60* 

591 

59;i 

60 

59i 

69^ 

601 

691 

60 

601 

59 

59i"b 

60i 

59  i 

591 

601 

60 

60? 

60J 

60i 

60| 

60f 

59J 

60i^s 

60 

59i 

59/b 

59i 

59 

59/5 

59J 

59i 

594 

591 

58J 

59i 

60i 

69 

59,=B 

60§ 

581 

59? 

60 

581 

59i 

60 

59^ 

59} 

61^ 

59i 

61t'b 

611 

60 

61 

611 

591 

60i 

6U 

601 

6U 

611 

601 

6U 

611 

60 

61/3 

62i 

60i 

61t^5 

62 1 

61 

61} 

61| 

60} 

eir'V 

62i 

61 J 

62r'B 

621 

61i 

6UJ 

611 

60i 

60}i 

621 

61 

61/s 

61J 

61 

611 

621 

60| 

61  i 

611 

60J 

61t'b 

62i 

60| 

61  i 

61i 

60t 

60^5 

61 J 

60i 

60i 

Value  of  a 
line  ounce 
at  averaje 
quotation. 


SI.  297 
1.313 
1.308 
1.315 
1.305 
1.304 
1. 323 
1. 323 
1.316 
1.303 
1.297 
1.304 
1. 298 
1.300 
1.308 
1.304 
1.  309 
1.316 
1.337 
1.326 
1.348 
1.348 
1.344 
1.344 
1.353 
1.344 
1.360 
1.352 
1.333 
1.346 
1.345 
1.345 
1.338 
1.339 
1.  328 
1.326 


Calendar 
years. 


1869 
1870 
1871 
1872 
1873 
1874 
1875 
1876 
1877 
1878 
1879 
1880 
1881 
1882 
1883 
1884 
1885 
1886 
1887 
1888 
1889 
1890 
1891 
1892 
1,S93 
1894 
1895 
1«90 
1897 
1898 
1899 
1900 
1901 
1902 
1903 


Highest 

Lowest 

Aver- 

quota- 
tion. 

quota- 
tion. 

quota- 
tion. 

d. 

d. 

d. 

61 

60 

60t's 

60} 

601 

60/b 

61 

60i^s 

001 

611 

591 

60/b 

59}| 

571 

59^ 

59J 

571 

58| 

571 

55i 

6611 

581 

46} 

531 

58i 

531 

541i 

551 

49^ 

621 

63} 

481 

511 

52M 

5U 

521 

521 

50i 

511 

521 

60 

5111 

51/g 

50,'b 

60A 

511 

491 

6014 

50 

46J 

481% 

47 

42 

451 

471 

431 

4411 

44^B 

41 S 

42J 

-   441 

41ii 

421J 

541 

431 

47i' 

48} 

4Sk 

45r'B 

43} 

37J 

39} 

38} 

30i 

351% 

31} 

27 

28^:i 

311 

27^8 

2912 

3Ui 

29} 

30,? 

2911 

231 

27  r\' 

281 

25 

26x1 

29 

261 

27/b 

301 

27 

28i»B 

29fk 

2411 

271% 

26tV 

21B 

24,^ 

281 

21H 

24} 

Value  of  a 
fine  ounce 
at  average 
quotation. 


$1,325 

1.328 

1.326 

1.322 

1. 297G9 

1.27883 

1. 24233 

1. 16414 

1.20189 

1. 15358 

1. 12392 

1. 14.507 

1. 13229 

1. 13562 

1.10874 

1.11068 

1.06510 

. 99467 

. 97946 

. 93974 

.93511 

1.04634 

.98800 

. 87145 

.78030 

. 63479 

.  6.5406 

. 67565 

. 60438 

. 59010 

.601.54 

. 62007 

. 59595 

. 52795 

.  54257 


«OLD    STANDARD    IN    INTERNATIONAL    TRADE. 


507 


I  fir/hist,  fnitrnt,  ami  arerage  j>rice.  of  silver  huUioyi  and  value  of  a  fine  otnicr  each  )iionlli, 
daring  the  calendar  years  1900-1903. 


Month. 

High- 
est. 

Low- 
est. 

Average 

price 
per  ounce 

British 

standard, 

0.925. 

Equivalent 
value  of  a  fine 

ounce  with 
exchange  at 
par  (84.8605). 

Average 

monthly 

price  at 

New  York 

of  ex- 
change on 
London. 

Equivalent 

value  of  a  fine 

ounce  based 

on  average 

monthly 
price  and  av- 
erage rate 
of  exchange. 

Average 
monthly 
New  York 
price  of 
fine  bar 
.silver. 

1900. 

Pence. 

273 

27J 

27  U 

27  i 

27  g 

28,», 

28ft 

28,', 

291 

30.1 

29JS 

29}g 

Pence. 
'11 

-'IB 

27  .i 

27i 

27!? 

28i'e 

291 

29^ 

29J 

Pence. 
27. 3088 
27. 4765 
27.5810 
27.4150 
27.5625 
27. 8293 
28.2375 
28. 2500 
28. 8375 
29. 5902 
29. 6634 
29.6900 

50. 59864 
.60015 
.  604(iO 
. 60096 
. 60577 
.61005 
.61895 
.61927 
. 63215 
. 64865 
. 65025 
.  6.5839 

84.8725 
4.8748 
4. 8.591 
4.8756 
4.8806 
4.86% 
4.8712 
4. 8786 
4.8689 
4. 8432 
4.8470 
4.8488 

80.  .59938 
. 60346 
.  60363 
.  ()0208 
.60619 
.61043 
.619.57 
.61839 
. 63285 
.  W.551 
.  64760 
.  64849 

$0. 60226 

.  (i0602 

.  60611 

.  60395 

May 

.  60682 

.61120 

Jniv 

.61935 

.  61865 

.  63343 

October 

.  64935 

. 64296 

. 64775 

28.2868 

. 62007 

4.80.58 

.  61979 

. 62065 

1901. 

29t% 
28fo 
28i 

I51' 

27 1 

271 

271 

27 

26^ 

261 

25J 

27J 

27t 

27A 

26!§ 

i? 

2<iig 

2GJ 

261 

20  i 

25i 

241^ 

28. 9735 
28. 1592 
27.9495 
27.2925 
27.4189 
27. 4200 
26. 9629 
26. 9375 
26. 96.50 
26. 6157 
26. 0913 
25. 4475 

.  63513 
.61728 
.  61268 

.  59828 
.60105 
.60107 
.59107 
.  .59050 
..59110 
.  .58344 
.57150 
.55783 

4.8724 
4.8780 
4. 8778 
4.8817 
4.8815 
4. 8820 
4. 87.52 
4. 8731 
4. 8485 
4. 8623 
4. 8752 
4. 8698 

.63.582 
.61858 
. 61422 
.60014 
. 60366 
.60298 
. 59209 
.  .59130 
. 58949 
.  58294 
.  57360 
.  .5.5820 

. 63485 

.  61693 

.  61336 

Ai)ril              

.  60033 

May 

.  60394 

.60335 

July                

.  59423 

August 

. 59217 

.  58978 

.  .58356 

. 57400 

.55790 

27. 1861 

.59.595 

4. 8731 

. 59691 

. 59703 

1902. 

26t'b 
251 
25t'b 
24| 

24i'b 

24/g 

24t'b 

24i 

23B 

231 

2-21 

251 

25i'« 

24ig 

231^ 

23ft 

23}i 

24ft 

24ft 

23ft 

231 

21i^ 

21  ig 

25. 62.50 
25. 4140 
25. 0078 
24. 3221 
23. 6990 
24. 1850 
24. 3680 
24. 2259 
23.8750 
23. 4004 
22. 6925 
22. 2067 

.56173 
. 55711 
.  54820 
.  .53316 
. 51950 
. 53016 
. 53417 
.53106 
.52326 
.51296 
. 49-31 
. 48679 

4. 8716 
4. 8749 
4.8773 
4.8788 
4.8731 
4. 8764 
4.8800 
4. 8748 
4. 8603 
4. 8626 
4. 8714 
4.8701 

. 56231 
..5.5806 
.54938 
. 53449 
.  52021 
.  .53122 
. 53566 
.  53197 
. 52270 
.  51255 
.497.58 
. 48694 

..56302 

.  55,s33 

March 

.  .54923 

.  .53452 

Mav 

..52000 

.  .53085 

July 

..53152 

.  532.50 

September 

. 52269 

.51162 

. 49705 

Decern  ber 

. 48653 

Average 

24.0851 

.  52795 

4. 8726 

.52858 

. 52815 

1903. 
.January 

221 

22,\ 

22}g 

^^ 
251 

24  ft 

251 

26i 

27t-o 

281 

271 

21H 
21  i 
221 
221 

^ 

241 

25ft 

261 

27ft 

201 

21. 9838 
22. 1093 
22. 5000 
23. 3550 
24. 8894 
24.3300 
24. 8<;ii 
25. 0009 
26.7.524 
27. 8935 
27.00.50 

.  48191 
.48466 
.49322 
. 51196 
. 54560 
..53334 
.54498 
.56120 
.  .58644 
.61145 
..59198 

4. 8689 
4.8753 
4. 8702 
4.8718 
4.8813 
4. 8779 
4. 8675 
4. 8582 
4. 8635 
4. 8.564 
4.83% 

.48214 
.  48.553 
. 49359 
.51253 
..54-^09 
.  53457 
.  54.509 
.  5f.025 
.  58608 
.61064 
.  58898 

. 48213 

. 48479 

Marcli 

.493.55 
.512.55 

Mav 

. 54775 

.luuc 

. 53519 

July 

.  5-1.500 

August 

.  .56076 

September 

. 58605 

.60963 

Novem  ber 

.  .58745 

Average  (11 
months) 

24. 6618 

..54061 

4.8664 

. 54059 

.  .54044 

508 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 


Higliest,  lowest,  and  average  value  of  a  United  States  silver  dollar,  measured  by  the  market 
price  of  silver,  and  the  quantity  of  silver  purchasable  ivilh  a  dollar  at  the  average  London 
price  of  silver,  each  year  since  1873. 


Bullion  value  of  a  silver 
dollar. 

Grains  of  pure 
silver  at 

Calendar  year. 

Highest. 

Lowest. 

Average. 

purchasable 

with  a 
United  States 
sUver  dollar." 

1873 

SI.  016 
1.008 
.977 
.991 
.987 
.936 
.911 
.895 
.896 
.888 
.868 
.871 
.847 
.797 
.799 
.755 
.752 
.926 
.827 
.742 
.657 
.538 
.532 
.541 
..505 
.481 
.491 
.509 
.  501 
.442 
.483 

SO.  981 
.970 
.941 
.792 
.902 
.839 
.828 
.873 
.862 
.847 
.848 
.839 
.794 
.712 
.733 
.706 
.711 
.740 
.738 
.642 
.517 
.4.57 
.461 
.504 
.400 
.424 
.451 
.463 
.423 
.367 
.368 

SI.  004 
.989 
.961 
.900 
.929 
.892 
.869 
.885 
.876 
.878 
.858 
.859 
.823 
.769 
.758 
.727 
.723 
.809 
.764 
.074 
.004 
.491 
.505 
.522 
.467 
.456 
.465 
.479 
.461 
.408 
.420 

369. 77 

1874 .            

375. 38 

1875 

386.31 

1876 

412.  .50 

1877 

399. 62 

1878 

416. 20 

1879 

427. 21 

1880 .              

419. 49 

1881 

423. 80 

1882.                  

422. 83 

1883 

432. 69 

1884 

432. 18 

1885 .                  

4,51.09 

1886 

482. 77 

1887 

489. 78 

1888 

510. 06 

1889 

513. 48 

1890 

4.58. 90 

1891  .                    

485.  93 

1892 

550. 81 

1893 

614. 65 

1894                      

7.56. 11 

1895 

735. 14 

1896 

711.20 

1897                 

794.  90 

1898 

814,14 

1899 

791.84 

1900                 

774. 10 

1901 

805. 43 

1902 

909.17 

1903 

884. 67 

1371.25  grains  of  pure  silver  are  contained  in  a  silver  dollar. 


GOLD    STANDARD    IN    INTERNATIONAL    TRADK. 


509 


Coinage  nilue  in  guld  of  an  ounce  of  fine  silver  at  the  ratios  1 :  15-1 :  40. 


Ratio. 


ItolS 

1  toloi 

1    to   15. 9W    (United 

States  ratio) 

1  toK) 

1  toltii 

ltol7 

itoiv; 

ltol8 

ItOlSJ : 

ltol9 

ltol9i 

Ito20 

Ito20i 

lto21 

lto2U 

lto22 

lto22i 


Value  of 

an  ounce 

of  tine 

silver. 


3780 
333ti 

2929 
2919 
2527 
2159 
1811 
1483 
1173 
0879 
OtiOO 
0335 
0083 
9843 
9614 
9396 
9187 


lto23. 
lto23i 
lto24. 
1  to24; 
lto25. 
lto25i 
lto26. 
1  to26i 
lto27. 
lto27i 
1  to  28. 
1  to  28i 
1  to29. 
1  to  29.^ 
ItoSO. 
1  to30i 
1  to  31 . 
lto31i 


Value  of 

an  ounce 

of  tine 

silver. 


$0. 8987 
.  8796 
.8613 
.8437 
.  8268 
.8106 
.  7950 
.7800 
.  76.56 
.  7.517 
.7382 
.  7253 
.7109 
.7007 
.6890 
.6777 
.6668 
.6562 


Ratio. 


Value  of 

an  ounce 

of  fine 

silver. 


lto32 1  80.6459 

1  to324 .6360 

lto33 1  .6264 

lto33,i I  .6171 

lto34 i  .6080 

lto34i I  ..5992 

1  to35 ]  .5906 

1  to35.; i  .5823 

Uo36 .,5742 

lto36J 1  .5663 

lto37 1  .5587 

lto37^ .5512 

lto38 .5439 

1  to  381 1  .5369 

lto39 i  .5300 

Uo39i .5233 

lto40 .5168 


510  GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 

Monetary  sydems  and  ap])roximalc  stocks  of  money  in  the  (lyyreyate  and 


Countries. 


United  States.... 
Austria-Hungary 

Belgium 

Britisli  limpire: 

Australa.'^ia    . . . 

Canada 

Great  Britain  .. 

India 


Monetary 
standard. 


Gold. 
..do. 
...do. 


.do. 
.do. 
.do. 
.do. 


South  Africa do 

Straits  Settlements/  .    Silver  . . 

Bulgaria Gold 

Cuba I.. .do  — 

Denmark I . .  .do 

Egypt j...do.... 

Finland I... do  . 


France 

Germany 

Greece 

Haiti 

Italy 

Japan : 

Netherlands 

Norway 

Portugal 

Roumania 

Russia 

Servia  

South  American  States. 

Spain 

Sweden  

Switzerland 

Turkey  

Central    American 
States. 

China 

Mexico 

Siam 


Total 


do.... 
...do.-.. 
...do.... 
...do.... 
...do.... 
...do.... 
...do.... 
...do.... 
...do.... 
...do.... 
...do.... 
...do.... 

...do  e... 

...do... 
...do... 
...do... 
...do... 
Silver /t 


...do... 
...do... 
Gold... 


Monetary 
unit. 


Dollar . 
(,'rown . 
Franc  . 


Pound  sterling . 

Dollar 

Pound  sterling . 
Pound  sterling 

and  rupee. 
Pound  sterling  . 

Dollar 

Lev 

Peseta 

Crown 

Piaster  

Mark 

Franc  

Mark 

Drachma 

Gourde 

Lira 

Yen  

Florin 

Crown 

Milreis 

Leu 

Ruble 

Dinar 

Peso 

Peseta 

Crown 

Franc  

Piaster  

Peso 


Tael. 
Peso . 
Tical 


Popula- 
tion. 


000 
omitted. 


81,200 

48, 100 

6,900 

5, 600 

5,400 

42, 500 

295, 200 

7,100 

5,100 

3,700 

1,600 

2, 600 

9,800 

2,700 

39, 000 

56, 400 

2,400 

1,300 

33, 000 

48,400 

6,300 

2,300 

6,400 

6,000 

130, 900 

2, 600 

39, 400 

18,  600 

5,200 

3,300 

24, 000 

4,200 

330, 100 

13, 600 

6,300 


1,295,200 


Stock  of 

Ratio  be-      Ratio  be-  L^^k'^  *','fj 
tween  gold  tween  gold  '^^"'^^  '^"^ 
and  full  le-!    and  lim- 
gal-tender  jited-tender 
silver.  silver 


public 
.  treasuries. 


l-15i 
l-15i 


l-15i 
l-15i 
l-15i 


1-15S 


l-15i 


1-15A 
l-15i 
l-15i 


l-15i 


1-14.95 
1-13. 69 
1-14. 38 

1-14. 28 
1-14. 28 
1-14. 28 
1-21. 90 

1-14. 28 
1-14.38 
1-14. 28 
1-14. 88 
1-15.68 
1-15.50 
1-14. 38 
1-13. 95 
1-14. 38 
1-14. 38 
1-14. 38 
1-28. 75 
1-1.1.13 
1-14.  88 
1-14. 09 
1-14. 38 
1-23. 24 
1-14. 38 
1-14. 38 
1-14.38 
1-14. 88 
1-14. 38 
1-15. 09 


l-16i 


000 
omitted. 


$859, 000 

a  235, 800 

618,000 


50, 000 
a  182, 800 
g  63,  200 

«  39, 400 

"Vi,"466' 

18,000 

« 17, 400 

10,000 

'•4,100 

a  458, 900 

b 132, 800 

«  200 

« 1,000 

a  116,  400 

n  69, 800 

o  20, 200 

a  6,  700 

a  5, 200 

(•14,300 

a  385, 800 

<-3,100 

a  91, 800 

a  78, 800 

(1 15,  900 

a  -20,  800 

10,000 

al,900 


b 8, 600 


2,941,300 


a  Official  information  furnished  through  United  States  representative.s. 

^Estimate,  Bureau  of  the  Mint. 

<•  Ij'Economiste  Europoen,  January,  1903. 

dC.  Cramer  Frey. 


GOLD    STANDAKl)    IN    INTP;RNAT10NAL    TRADE. 


511 


per  capita  /»  the  principal  countries  of  the  vorld  on.  December  31,  190S. 


Stock  of  gold. 


In  circu- 
lation. 


000 
omitted. 


W61,400 
n 51, 000 
612,000 


0  347,600 
0  29,200 


50,000 


6509,400 

6668,600 

0  2,100 


0  24,700 
'08,266 


I         a  100 
I  0397,' 966' 


a  3, 200 
6  9,400 
40,000 


12, 614, 800 


Total. 


000 
omitted. 


$1,320,400 

a  286, 800 

6  30,000 

0  128,600 

50,000 

n  530, 400 

(/63,200 

a  68, 600 


c 1,400 

18,000 

a  17, 400 

6  60,000 

c4,100 

6  968,300 

6  801,400 

a  2, 300 

01,000 

0  141,100 

a  69, 8C0 

a  28, 400 

06,700 

0  5,300 

c 14, 300 

o  783, 700 

<-•  3, 100 

0  91,800 

0  78,800 

019,100 

6  30,200 

6  50,000 

01,900 


6  8, 600 
61,000 


Stock  of  silver. 


Full 
tender. 


000 
omitted. 


8572, 200 


615,000 


0  546,400 


«'  13, 800 
6  2,000 


0373,500 

o  50, 900 

-^a  500 

o 1, 000 

o  16, 000 


o  52, 300 


6  30, 000 
03,100 

6  345, 800 

a  48,  900 

a  193, 000 


Limited 
tender. 


000 
omitted. 


8107,000 

a  79, 200 

6  9, 700 

o  6, 100 

o  6, 700 

o  115, 800 


"  2, 200 

a  3, 200 

0  1,. 500 

5,000 

a  6, 200 

a  15, 000 

C600 

a  46, 300 

a  157, 700 

u  1,400 

0  1,200 

a  20, 800 

o  29, 400 

0  4,000 

0  3,000 

a  6,  .500 

c-600 

0  101,900 

1-1,700 

"  10,  700 

0  173,700 

o  7, 000 

(1 10,  700 

610,000 


5,685,700     2,268,400       944,800 


Total. 


000 
omitted. 


8679, 200 
o  79, 200 
6  24,700 

a  C,  100 

06,700 

o  115, 800 

o  54C),  400 

o  2, 200 

0  17,000 

c  3, 500 

5,000 

a  C,  200 

a  15, 000 

C600 

0  419,800 

0  208,600 

o  1,900 

o  2, 200 

a  36, 800 

o  29,  400 

o  50, 300 

a  3, 000 

a  6,  500 

C600 

0  101,900 

c  1,700 

a  14,  700 

o  173, 700 

a  7,  000 

(1 10,  700 

6  40,000 

03,100 

6  345, 800 

o  48, 900 

o  193, 000 


Uncovered 
paper. 


000 
omitted. 


8500, 600 

"63,500 

6  107, 800 


"  56, 900 

0  117,100 

"  32, 400 


04,100 
c,3, 900 


o  7, 800 


c9,60a 

o 175, 600 

o 193, 800 

a  29, 100 

o  3, 500 

o 177, 900 

o  58, 300 

6  48,800 

07, 900 

o  63, 000 

c  19, 800 


c2,700 

0  1,519,400 

a  139, 300 

o  29, 700 

o  19, 900 


o  32, 500 


o  54, 000 
a  2,  600 


3,213,200       3,511,500 


Per  capita. 


Gold. 


816. 26 
6.96 
4.35 

22.96 

9.26 

12. 48 

.21 

9.66 


.38 

11.25 

6.69 

3.06 

1.52 

24.83 

14.21 

.96 

.77 
4.28 
1.44 
5.36 
2.91 

.98 
2.38 
5.99 
1.19 
2.33 
4.24 
3.67 
9.15 
2.08 

.45 


.63 
.16 


Silver. 


88.36 
1.65 
3.58 

1.09 
1.24 
2.72 
1.86 

.31 
3.33 

.95 

3.13 

2.38 

■    .65 

.22 
10.76 
3.70 

.79 
1.69 
1.11 

.61 

10.62 

1.30 

1.20 

.10 

.78 

.65 

.37 
9.34 
1.35 
3.24 
1.67 

.74 

1.05 
3.60 
30.63 


rai)er. 


86.17 
1.32 
15. 62 


10.54 

2.76 

.11 


.81 
1.05 


3.00 


3.55 
4.50 
3.43 

12. 12 
2.69 
5.39 
1.20 
9.21 
3.44 

11.67 
3.30 


1.04 
39.32 
7.49 
5.71 
6.03 


7.74 


3.97 
.41 


2.71 


Total. 


830. 79 
8.93 
23.55 

24.05 

21.04 

17.96 

2.17 

9.97 

4.14 

2.38 

14.38 

12.07 

3.71 

5.29 

40.09 

21.34 

13.87 

5.15 

10.78 

3.25 

25.19 

7.65 

13.85 

5.78 

6.77 

2.88 

42.02 

21.07 

10.73 

18.42 

3.75 

8.93 

1.05 
8.20 
31.20 


9.66 


e  Except  Bolivia. 

/Includes  Straits  Settlements,  the  Malay  States,  Ceylon,  and  Johore. 

a  Report  of  head  commissioner  of  paper  currency. 

h  Except  Costa  Rica  and  British  Honduras,  gold-standard  countries. 

Note. — The  value  of  the  monetary  stock  of  silver-standard  countries  has  been  changed  to  conform 
to  the  decline  in  silver  values.  The  monetary  .stock  of  Mexico  and  other  countries  where  the  Mexican 
dollar  circulates  is  given  in  Mexican  dollars  at  bullion  value. 


512 


GOLD    STANDARD    IN    INTERNATIONAL    TRADE. 


Theoretical  parities  of  tlie  principal  gold  coins  of  the  world. 


Descriptive. 

United 
States. 

Russia. 

England. 

Latin  Union. 

I.  Gold    dollar    and    cents   of    the 

Dollar. 

Ruble. 

Pound  sterling. 

^ranc.  (a) 

United  States.     (1  gold  dollar= 

23.22   troy   grains  of    fine  gold; 

5,760      troy      grain.s  =  373.24195 

grams;    hence  a    gold    dollar  = 

1.50-i631«l  1  grams  of  fine  gold) 

1.00 

0. 514.5673 

4. 866561 

0. 1929526 

II.  Rns.sian    ruble  and    kopecks.     (1 

ruble  =  j'^     of       an      imperial; 

1     imperial  =  261.36      doli,      or 

11.61351571875     grams     of      fine 

gold;')    1   ruble  =  17.424  doli   of 

fine  gold) 

1. 94337999 

1.00 

9. 4.5758222 

. 37498022 

III.  English  pence.     (1  penny  =  ^^  of 

a     pound     sterling,    and     1,869 

pounds  sterling  =  40  troy  pounds 

of   gold,   \\,  0.916J    fine;  1  troy 

pound  =  373.24195  grams;   a  sov- 

ereign (£1)  =  7.32238532  grams  of 

fine  gold ) 

49. 316 

25. 376464 

240 

9. 5157 

IV.  Francs  and  centimes.     (The  gold  . 

20-f  ranc  piece  contains  ^ff  grams 

of  fine  gold) 

5. 18262 

2. 666807 

25. 22155 

1.00 

V.  German  Empire.    Mark  and  pfen- 

nig.     (1    crown    or    10    marks 

contains  yV;)"  grams  of  fine  gold) . 

4. 19792 

2. 160113 

20. 429455 

.81 

VI.  Netherlands.    Florins  and    cents. 

(The    10-florin     piece    contains 

6.04S  grams  of  fine  gold) 

2. 4878 

1. 2801494 

12. 1071186 

.  4800.3072 

VII.  Austria.    Crowns   and    hellers.     (1 

crown  =  100  hellers;   10  crowns 

contain    3.04878    grams    of    fine 

gold) 

4. 93519247 

2. 5394891 

24. 0174277 

.  9.522.582 

VIII.  Portugal.     (1    crown    of    10    mil- 

reis  =  16.257083J    grams   of   fine 

gold) 

.9255 

476244 

4.504 

. 178682 

IX.  Japan.    Yen    and    sen.     (20   gold 

yens  =  16.6665  grams  of  gold  0.900 

fine;    1    yen    contains   0.7499925 

grams  of  fine  gold) 

2. 006119915 

1.0323228 

.76327806 

. 38710064 

Descriptive. 


German 
Empire. 


Nether- 
lands. 


Austria. 


"Portugal. 


Japan. 


I.  Gold  dollar  and  cents  of  the 
United  States.  (1  gold  dollar  = 
23.22  troy  grains  of  fine  gold; 
5,760  troy  grains  =  373.24195 
grams;  hence  a  gold  dollar  = 
1.504631611  grams  of  fine  gold)  . . . 
II.  Russian  ruble  and  kopecks.  (1 
ruble  =  jJj  of  an  imperial;  1 
imperial  =  261.36  doli,  or 
11.61351571875  gramsofflnegold;b 
1  ruble  =  17.424  doli  of  fine 
gold) 

III.  English  pence.     (1  penny  =  5^5  of 

a  pound  sterling,  and  1,869 
pounds  sterling=40  troy  pounds 
of  gold,  \^,  0.9161  fine;  1  troy 
pound  =  373.24195  grams;  a  sov- 
ereign (£1)=  7.32238.532  grams  of 
fine  gold) 

IV.  Francs  and  centimes.     (The  gold 

20- franc  piece  contains -"gY  grams 

of  fine  gold) 

V.  German  Empire.  Mark  and  pfen- 
nig. ( 1  crown  -or  10  marks  con- 
tains Yxlr  grams  of  fine  gold) 

VI.  Netherlands.  Florins  and  cents. 
(The    10-florin    piece    contains 

6.048  grams  of  fine  gold ) 

VII.  .Vustria.  Crowns  and  hellers.  (1 
crown  =100  hellers;  10  crowns 
contain    3.04878   grams   of   fine 

gold) 

Vlll.  Portugal.  (1  crown  of  10-milreis  = 
16.2.')7083f  grams  of  fine  gold) 

IX.  Jajmn.  Yen  and  sen.  (20  gold 
yens= 10.6665  grams  of  gold  0.900 
fine;  1  yen  contains  0.7499925 
grams  of  fine  gold ) 


Marie. 


0. 23821 


.  46293855 


11. 74774 

' 1.2345679 
I       100/81 


Florin. 


0.402 


. 78115879 


19. 82305 
0832 


}- 


1. 1756274 
.22(M7 


1. 687392 
1.00 


1. 983744 
.  372022 


Croum. 


0. 20262634 


.  39377998 


9. 99274373 
1.050135 


.  8.506096 
.  5040974 


1.00 
1.87553.55 


Grown. 


20. 9976252 


532. 84.549 
55. 997 


45. 3572625 
26. 880098 


53. 323242 
10.00 


Yen. 


0. 498455 


.  9686892 


24. 581907 
2. 5833076 


2. 092479075 
1. 24006696 


2. 45997599 
.  46133275 


47790203       .  80640806 


40650806     21.676327       1.00 


"One  Russian  pounds  109.5124  grams. 

6 Or  Italian  lira,  new  drachma;  Roumanian  lei;  Finnish  mark,  or  Spanish  peseta. 


o 


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